The whirlwind that has swept the eurozone in the last few months has forced a number of countries to bring economic reform to the top of their national agenda. Endless comparisons have been made between countries like Greece, Spain, Portugal, Italy and Ireland. But ultimately every country needs to undertake its own soul searching exercise to identify where things are not functioning well and where remedial action is necessary.
Portugal faces some tough choices to sanitise those parts of its economy that are preventing it from converging faster with the better performing eurozone economies. In 1973, just prior to the Carnation Revolution, the GDP per capita of Portugal amounted to 56 per cent of the EC-12 average. Today it stands at about 70 of the EU-27 average.
In this same period the Portuguese economy underwent vast changes and today the country has a much more diversified economic base. Industry accounts for 24 per cent of economic activity, while services account for about 73 per cent of GDP. Agriculture, once the mainstay of economic activity, now accounts for three per cent of GDP.
EU membership heralded an era of unprecedented prosperity for Portugal, as it did for Ireland. But, ironically, this also led to decisions that are at the root of today's economic crisis. Some economic experts argue that the structural funds allocated by the European Union were used to improve infrastructure, and not to shore up industry.
The growth of the services sector also meant that the number of employees in the public service grew to levels that were higher than was really needed. This resulted in substantial underemployment, the proliferation of bureaucratic practices, and a crippling wrong distribution of scarce resources. Unfortunately, Portugal also suffers from a weak educational system that is partly to blame for low productivity in certain areas of the economy as well as sluggish growth.
The combination of these negative factors was rendered even more lethal by the eastern expansion of the EU which introduced some formidable competition from new low-cost countries. Portugal can no longer depend on attracting investment because of its low-cost base.
There are, however, many positive factors that can ensure that Portugal will once again overcome the formidable economic challenges that it faces. Portugal rightfully boasts about the presence of a number of international companies like Siemens, Volkswagen, Ikea, Nestlé, Microsoft and Danone. These companies claim that their setups in Portugal are ranked among the most productive in the world and achieving high productivity records.
Similarly, many Portuguese companies are important players in the international markets. Companies like Sonae (retail), Amorim, (a conglomerate with interests in tourism, real estate and finance) and Critical Software (IT), are just a few of the Portuguese companies that have expanded internationally and are a confirmation of the potential for robust export-led economic growth that this country possesses.
But an important jewel in the crown of Portuguese businesses is surely Banif Bank. This bank that is steadily expanding internationally is building a name for itself as an innovative financial institution that offers high quality, simple solutions to its clients. Now entering its third year of operations in Malta, Banif is steadily becoming the "alternative bank" for the local community which is served through the bank's commercial network spread throughout the Island.
Like other southern European countries, Portugal has to make tough choices including that of cutting down on its public expenditure, continuing to liberalise its labour and property markets, upgrading its educational system and coming up with a strategy that promotes export-led economic growth.
The political consensus achieved by the current minority government and the opposition on the tough measures that need to be taken to bring the economy back on the path of steady economic growth is a good omen. I believe that Portugal will be one of the first troubled eurozone countries that will exit this difficult stage successfully.
jcassarwhite@yahoo.com