Mainland Portugal, along with the autonomous island regions of the Azores and Madeira, offers American exporters a market of approximately 10.6 million people in a country roughly the size of the State of Indiana. As a member of the European Union (EU) and the euro zone, it is fully integrated with the EU, uses the euro currency, and follows directives from the European Commission in Brussels. As with all EU countries, Portugal’s borders and ports are completely open to the free flow of trade with other EU member countries. Portugal has a politically stable environment with a democratically elected parliamentary government and is welcoming of foreign business and investment.

Portugal’s GDP per capita is $22,699 (2011), and its language is the 7th most widely spoken in the world. The country retains close political and economic relations with its former colonies, which are spread throughout Africa, Asia, and South America. However, against a backdrop of slow recovery from the global recession, the Portuguese economy contracted 1.5% in 2011. The Bank of Portugal forecasts further contraction in 2012 by as much as 3.1%.

Portugal’s budget deficit, which had been in excess of the EU’s limit of 3% for much of the early part of this decade, was brought down to 3.1% of GDP in 2007 through spending cuts and structural reforms, but a weak economy and a concurrent steep decline in tax revenues caused it to balloon to 10.1% of GDP in 2009. In 2011, the government reduced the deficit to 4% of GDP (est.), primarily through a one-off transfer of bank pension funds to the state. The government has been implementing austerity measures under a three-year (2011-2014) bailout program with the Troika (ECB/IMF/EC) to further reduce the budget deficit to 4.5% of GDP this year. With the government’s focus on deficit control and fiscal consolidation, public investment projects have been impacted.

The government remains committed to attracting FDI, expanding trade with Spain, the U.S., and Africa, and focusing on niche sectors of the economy such as tourism, renewable energy, high quality industrial components, and technology services. U.S. Census data indicates that Portuguese consumers bought approximately $1.23 billion dollars worth of U.S. goods and services in 2011, up from $1 billion in 2010. During that same period, U.S. imports of Portuguese goods and services totaled over $2.35 billion, up from $2.14 billion in 2010. The top U.S. states exporting to Portugal were Texas, New Hampshire, California, Ohio, New Jersey, Wisconsin, Indiana, and New York. Top U.S. exports included computer and electronic products, industrial machinery, agricultural products, chemicals, and electrical equipment.

Although the United States ranks 8th among Portugal’s top export trading partners (2nd among non-EU countries), Portugal ranks 67th among U.S. export markets. However, the total amount of U.S. goods sold into Portugal is undoubtedly higher than the statistics reflect, as census data does not account for U.S. products imported into other EU countries and subsequently transported into Portugal for sale. It is common throughout the European Union for goods to be shipped to one EU location – often to take advantage of lower value added tax rates - and then to be distributed by ground transport to neighboring member state markets.

The United States continues to work closely with Portugal to find ways to expand and deepen two-way trade and investment to better reflect historically strong political, geo-strategic, and security ties between the two countries. Portugal’s continued drive to modernize and diversify its economy will offer possibilities for growth in U.S. trade and investment over the medium and long-term. Demand for high-quality, price-competitive U.S. products in Portugal is strong, and privatization of several large government-owned companies will provide additional opportunities for investment.

Market Challenges

Portugal is in the midst of a severe euro zone debt crisis. In May 2011, Portugal sought a €78 billion bailout from the EC/IMF/ECB Troika, conditioned on implementing an austerity program of fiscal consolidation and deep-reaching structural reforms. While Portugal has made notable progress on its commitments, external developments in the euro area may impact its progress.

Battling low economic growth, high fiscal deficits, and record high unemployment, there is little room for public spending as a means of alleviating the impact of the current economic slowdown. Budget tightening has targeted the public sector which, in turn, has limited economic growth. In addition, Portugal still has one of the highest Value Added Tax (VAT) rates in Europe at 23%.

American exporters also face competition in Portugal from savvy European competitors. European companies are already familiar with aspects of the business culture, financing, regulations, standards, etc. In addition, they do not face import tariffs that U.S. companies have to pay to get their products into Portugal. Some U.S. companies have also reported that they are now encountering Chinese competitors in Portugal.

Market Opportunities

The current dollar/euro exchange rate continues to present an advantage for U.S. exporters to Portugal and other euro zone countries. A commonly held belief in Portugal is that U.S. products are high quality, but not competitive on price. All U.S. firms are advised to press their price advantage to break into the market and/or increase their market share.

The Portuguese market is larger than it may initially appear. While there are only 10.6 million people in Portugal, there are well over 200 million people who speak Portuguese worldwide. Former Portuguese colonies, including Macau, Mozambique, Angola and Brazil, have close business ties with Portugal. U.S. companies can often find avenues to these other markets through Portugal and, indeed, the Portuguese Business Promotion Agency (AICEP) is actively marketing the country as a “gateway” economy into third markets, particularly in Lusophone Africa.

Portugal is an excellent entry point or test market for U.S. firms looking to establish access into the EU. The country is politically stable; the crime rate is relatively low; the bilateral relationship is strong; English is widely spoken; and the population is very friendly toward Americans. Both physical and IT Infrastructure are well developed, and Portugal is still one of the lower commercial cost business environments in Western Europe.

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