On an estuary of the river Tagus, a little out from the centre of Lisbon, stands the Padrão dos Descobrimentos, the Monument to the Discoveries, commemorating Portuguese explorers during the 15th and 16th centuries. It symbolises not only colonial expansion, but an openness to the outside world — a trait that many Portuguese hold dear.
Portugal occupies a unique position in Europe. Its command of English is extremely high, and its language is spoken in Latin America and parts of Africa. On top of this, several Portuguese politicians hold positions of power on the world stage — such as the current UN secretary-general António Guterres. But its economy has been an underdog in the eurozone context. That is now changing.
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After the sovereign debt crisis of 2010–14, national and municipal governments made efforts to better engage with both its domestic talent pool and foreign entrepreneurs alike. The poster child of these efforts has been Lisbon, which has seen startling growth as a tech hub in recent years. Yet, the country’s investment proposition has become more extensive, as foreign investors eye business services, research and development (R&D), and capital-intensive industrial investments.
“There’s a combination of talent, improved logistics, and inputs for green electricity and data connectivity,” which can serve companies both in services and manufacturing, explains Filipe Santos Costa, CEO and chairman of Aicep, Portugal’s investment promotion agency.
As Portugal’s economy rebounds from the Covid-19 pandemic faster than most of its western European peers, its appeal has entered a new phase. The talent base in Portugal has been luring investments from the likes of German carmaker Mercedes-Benz and US pharmaceutical company Amgen, while the government has been on a push to attract industrial investments by improving its logistics infrastructu
Tech Transformation
First and foremost, one of the biggest changes in recent years has been that the capital’s tech scene has blossomed. Between 2016 and 2022, the combined value of start-ups with headquarters in Lisbon soared 26-fold from €818m to €21.4bn, according to data provider Dealroom, making the size of its start-up scene now equal to that of more established mid-sized tech ecosystems like Milan’s.
One result of the increased spotlight on Lisbon has been that a growing number of multinationals have become interested in Portugal’s talent pool, both within and outside of Lisbon, particularly in business services.
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Several companies told fDi that when carrying out a cost–benefit analysis of where to put a shared services centre or capability centre in Europe, Portugal emerged as a key destination due to its relatively low cost, high quality of service and multilingual talent.
Portugal is ranked eighth in the world and seventh in Europe for its English language skills, according to the EF English Proficiency Index. It also has the third-highest rate of engineering graduates in the EU, producing 90,000 graduates per year, according to Eurostat figures.
Though foreign businesses have long held business services operations in Portugal, what has been changing is the kinds of service centres that are being set up now, says António Lagartixo, managing partner and CEO of Deloitte Portugal.
“In the early 2000s, it was mostly back-office operations and low value-add activities,” he says. “In recent years, Portugal has become the preferred location for technology service centres.”
Multinational professional services firm Deloitte, which has been present in Portugal for some 50 years, invested €25m in a Lisbon tech centre in January, in step with its targeted expansion for the country.
Deloitte has positioned itself in Portugal not as a mere resource pool but as a “technology and solution centre”, in the same way that the Portuguese market has positioned itself to provide sophisticated business services to multinationals, according to Mr Lagartixo.
The figures speak for themselves: the average number of greenfield projects in business services between the years 2021 and 2023 doubled compared to the previous three-year period, according to fDi Markets.
Infrastructure and exports
In parallel, the Portuguese government has been on a recent push to attract more capital intensive investments, as it shores up the country’s infrastructure, to take advantage of its geographic position in Europe.
The annual average capital investment in Portugal between 2020 and 2023 is already 215% higher than the annual average capital investment over the course of the 2010s, according to fDi Markets.
The biggest greenfield project tracked by fDi Markets over the past three years was Spanish energy company Repsol’s €657m expansion in 2021 of its industrial complex in Sines, an industrial town in the south of the country.
This year, the government plans on completing two train lines, the Northern and Southern freight railway corridors, says Aicep’s Mr Costa, which will improve the country’s logistics infrastructure and drive freight costs down.
This will, in turn, feed into the importance of Portugal’s strategic geographic position. “Our location is important because it’s free of constraints” he continues. “We’re facing the open sea, we’re facing the Atlantic. We’re not on the Mediterranean, we don’t depend on shipping routes through the Suez Canal or the Red Sea.”
Automotive components are an important part of Portugal’s economy, representing 5.4% of its gross domestic product, according to Portugal’s Association of Manufacturers for the Automotive Industry. In a world of supply chain disruptions, Mr Costa says that the country is planning to capitalise on its geography and its industrial base to attract more nearshoring investments.
“Portugal has an advantage for positioning itself for multinationals nearshoring for auto components, as it’s an industry that we’ve had for a long time and we have the capacity to supply [these] products,” Mr Costa says.
The country’s openness to the outside world, both figurative and literal, thus keeps it afloat through uncertain waters. Despite a recent political scandal involving the now-former prime minister António Costa, which sparked a snap election in March, the growth rate for the Portuguese economy appears strong.
“The economy has been so far resilient to political uncertainty,” notes Agnese Ortolani, principal economist for Europe at the Economist Intelligence Unit (EIU).
Economic growth in Portugal bounced back strongly from the pandemic in 2021 and 2022. While it slowed to 2.3% in 2023, it stood head and shoulders above the eurozone average of 0.7%, according to IMF and EIU data. Looking forward, the IMF expects it to grow by 1.5% and 1.9% in 2024 and 2025, respectively, against the 1.2% and 1.3% projected for the whole of the eurozone.
Following in the footsteps of its adventurous history, Portugal is leveraging the strengths of its talent and openness to the outside world, which will help to take the country through another post-crisis decade.
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This article is part of the Special Report:
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