The Swords of Damocles hanging over Portugal’s companies
Portuguese companies are “massively undercapitalised” with 27% barely having the cashflow to keep going.
Two million of Portugal’s citizens are living on the breadline, 400,000 are unemployed and much of the workforce doesn’t have the skills or education to help lift the country out of an economic collapse in GDP not seen since 1928 says the Portuguese Government’s recovery Tsar, António Costa e Silva.
The revised figures released by the Institute of National Statistics in September make shocking reading. They reveal that Portugal’s fall in GDP in 2020 was not 7.6% as had been initially thought, but a catastrophic 8.4%.
António Costa e Silva, who had been charged with drawing up and helping to oversee which areas of Portugal’s economy should receive billions in EU bazooka funds, outlined a nightmare situation in which Portugal had suffered the greatest fall in its GDP since the Great Crash in 1928 and the Great Depression years that followed it.
But it wasn’t just plummeting growth. Regarding Portuguese companies, some 27% have negative own capital – meaning their cashboxes are completely empty – and are fighting to survive he told a group of businessmen at an event organised by the American Chamber of Commerce in Portugal (AmCham) this week, moderated by economist and lawyer António Rebelo de Sousa.
As for unemployment, there are 400,000+ on welfare or even without such a safety net in a country which has a population of just 10 million.
But what António Costa e Silva called “unacceptable” is that one in every five Portuguese is living on the breadline. (2 million people). “We are not talking about a third world country, but a developed one and the challenge facing us is how we are going to use all these financial instruments (Over €16Bn in Resilience and Recovery Programme funds) to reverse the situation”.
Regarding the evolution of the Portuguese economy so far this century, Costa e Silva said it had been “practically stagnant”, was “strangled” and “completely anaemic” almost likening the country to a Casualty patient on life support, not so very different or far from the edge as the many Covid-19 patients that filled intensive care beds in Portugal’s hospitals last year.
It made sobering listening at a time when the Government is now trumpeting the better than expected growth levels this year (4.5+%). But when you’ve hit rock bottom and are coming back from a ‘flatline’ status, the only way is up, one can suppose.
But Costa e Silva is in no doubt that these funds provide a once-in-a-lifetime opportunity for Portugal to restructure, modernise, re-skill, improve productivity and competitiveness that almost certainly won’t ever come around again.
“Crises come and go but taking the opportunity to really make lasting transformations and reforms so not so common,” he said of the urgent need to structurally overhaul Portugal’s economy in terms of eduction and skills, technology and digitalisation and modernisation of her companies to make the country’s economy and enterprises more agile, competitive, productive and dynamic.
“Growth for this period has only stood at 0.5% per annum and we have to ask ourselves why? It is not enough to have resources, plans, cash and funds to be applied. It is how we are going to structurally transform the Portuguese economy so that it means prosperity, wealth creation, definitive transformation, away from a trajectory that has been very sad and traumatic,” he said.
Looking at the numbers, the GDP per capita in Portugal over the past 20 years has oscillated between 30-40% below the EU average. Why? The explanations are multiple; but the first problem that has to be tackled are qualifications and skills and what needs to be done in the education and training areas.
“We are one of the countries in the EU which has one of the worst track records in terms of the percentage of the working population which has more than just secondary education. This is unacceptable, so we need to invest in this area to prepare professionals that companies need,” he said.
“We talk a lot about digitalisation, and that doesn’t mean giving people a computer so they can surf the net. It’s so much more than that,” he explained, adding that in 2019 only 16% of Portuguese companies used electronic platforms.
As to basic digital skills, 52% of the population master the basic principals, while when it comes to citizens who interact with the State, only 42% use electronic platforms. “We have a long road ahead of us,” he said.
The other “Damocles sword” hanging over the Portuguese economy is the under-capitalisation of Portugal’s companies.
“We live in a country that is hostile towards companies, with Government policies that systematically attack Portuguese companies, which is why have put companies also at the centre of the RRP programme” he continued.
The recovery Tsar said that Portugal had to change the paradigm regarding the capitalisation of companies because the level of capital per employee in Portuguese companies was among the lowest in the European Union.
“We cannot have a structural transformation in the Portuguese economy if we do not tackle this problem”, said António Costa e Silva.