Companies need to scale up to compete overseas

 In Companies, Construction, News

Portuguese companies, including its construction firms, need to merge or join forces and gain scale in order to stand any chance of successfully competing for deals and projects overseas according to the boss of construction and mining company, Mota-Engil

The new president of Portugal’s largest multinational construction company, Carlos Mota Santos, who was addressing business leaders at a lunch organised by the International Club of Portugal at the Sheraton Lisboa and Spa yesterday (Thursday, April 20), said that Portugal had a perennial problem with the (small) size of its construction companies, which made it difficult to successfully compete overseas for big ticket construction contracts.
“Unfortunately, we don’t have a culture of encouraging mergers and to gain scale”, said Carlos Mota Santos who pointed to neighbouring Spain which had managed to gain scale through mergers and acquisitions.
The recently elected boss at Portugal’s construction giant, which has a footprint on three continents – Europe, Africa and South America – said that without scale, Portuguese companies “had no place in the international market”.
Out of the 25 largest companies in the sector in 2006, there are only 11 remaining today which are of Portuguese origin: Mota-Engil, Teixeira Duarte and Somague,” he said.
Carlos Mota Santos also spoke about the company’s links to the Chinese construction company China Communications Construction Company (CCCC) which has a 30% shareholding in Mota-Engil. However, the CCCC shareholding has raised eyebrows in Portugal and elicited some concern in the US because it is controlled by the Chinese Government.
Portugal has over the past decade developed very lucrative relations with China, with Chinese investment contributing significantly towards assisting Portugal’s recovery from the 2008 global economic crisis.
With the intervention of the Troika of international lenders (IMF/EC and ECB) basically running Portugal’s finances after a €78Bn bailout was agreed in 2011 in return for profound structural changes to its economy, Portugal was eager to attract overseas investment, and the Chinese, wanting to increase their economic influence in Europe, particularly in spheres such as ports infrastructure and energy, water and telecommunications companies, were only too happy to oblige.
In 2011, China Three Gorges (CTG) bought a 21% stake in EDP, Portugal’s state-owned power company, for €2.7Bn. In 2012, CTG invested a further €359 million by acquiring 49% of EDP’s subsidiary EDP Renewables. In the same year, China State Grid bought a 25% stake in REN, another Portuguese state-owned power company, for €397 million.
But Lisbon’s increasingly close ties with Beijing raised serious concerns in Washington, particularly during the Donald Trump presidency with some scarcely veiled discomfort and threats directed at the Portuguese Government in some interviews at the time from the then US ambassador to Portugal, George E. Glass.
Knowing Portugal was desperate for investment and its companies badly in need of capital, the US administration began a period of “rough wooing” promising greater access to the US market for Portuguese technology and export companies with the hardly concealed proviso that Portugal might want to think again about the amount of Chinese investment and shareholdings it was accepting in key Portuguese companies, citing unfair competition, market distortion and security concerns.
Mota Santos was upfront about the Chinese state-owned construction company’s stakeholding in Mota-Engil at the ICPT lunch.
“The Chinese State is our shareholder” but added that this relationship had not impacted the company in a negative way.
“Even in Mexico, a market which is heavily influenced by the United States market (the US is Mexico’s biggest market, particularly in the car and automative industry), we have not felt any kind of constraints, restrictions, pressure or conditioning, or any type of problem because the CCCC is our most important shareholder”, he said.
The new boss at Mota-Engil pointed out that Chinese investment in Portugal had been “across the board”. “We are not the only company in Portugal that has a Chinese shareholder. Chinese investment makes up a significant share of Portugal’s companies network — banking, insurance, health, and energy”, he said.
Moreover, apart from Chinese investment, most of the other investment from overseas in Portugal was “opportunistic” he explained in a nod to the investment in commercial real estate from funds, and Golden Visa investment over the past few years, rather than in Portuguese industry.
“There has not been much non-Chinese investment in Portugal in recent years, all the European and US investment, with one of two exceptions, has been more opportunistic. They’ve been vulture and real estate funds. (Lone Star and Davidson Kempner Capital Management) to name two), and I don’t see them investing in the (Portugal’s) industrial sector”, he said.
As to fears about rising tensions between China and the US, he said that if this (continued) it would pose a “serious problem for everyone” and that Mota-Engil would be the “least of problems” against such a scenario.

Photo: Chris Graeme