Portugal sees rise in zombie companies

The number of zombie companies in Portugal has gone up to 8,501 (3%) since the pandemic making an already recurrent problem in Portugal worse.

Apart from causing productivity issues, such companies are one of the weaknesses in the Portuguese economy and are considered worrying as economists predict a recession just around the corner.
It is also of concern that some of the billions of euros from Brussels for the Recovery and Resilience Plan could end up supporting some of these zombie companies.
According to Jornal Económico, the zombie companies phenomenon, which has been widely studied, and gained even more relevance during the two pandemic years given the intense difficulties varies sectors reliant on human contact faced, but also came to the fore in the support companies in a difficult financial situation got from the banks.
In the case of Portugal these zombie companies are 4.5 times less productive than similar companies in a normal situation, a worrying situation given the chronic problems of productivity in the national economy. It is estimated that between 2005 and 2016 11% of all companies in Portugal were zombies according to one study ‘The Recovery and Exit of Zombie Firms in Portugal’ by Carlos Carreira, Paulo Teixeira, and Ernesto Neto-Carillo. That percentage is higher. In 2019 there were 7,813 zombie companies, less than the 14,602 registered at the height of Portugal’s Great Recession in 2014. In 2022 that figure climbed back up to 8,501 (3%).
The conclusions come from a paper from the Office of Strategy and Studies and the Ministry of the Economy and Sea produced by Ricardo Pinheiro Alves, Nuno Tavares and Gabriel Osório de Barros who identified a considerable heterogeneity among sectors that had a high prevalence of this type of companies and a tendency to apply financial resources, including potentially RRP funding, inefficiently.
A zombie company is a company that generates just enough cash to continue operating and service their debt, but not enough to invest and grow.
Since interest rates rose, funding for a lot of marginally profitable companies is drying up and these Portuguese zombie companies are wandering the markets looking for the cheap credit they used to rely on.
But it is not just companies, it is also the people who staff them. The Public Administration Competence Centre (PlanApp), which earlier this year analysed the productivity of companies in Portugal.
The document highlighted the impact of zombie companies in raising finance for more productive competitors and also highlights the added value of companies with more complex tasks.
Before that, the report condemns the “near stagnation dynamics” observed between 2010 and 2019 in productivity in Portugal, which only accelerated the slowdown trend observed since 1970. In the second decade of this century, the average annual growth rate of productivity per worker was only 0.6%. At the same level as Spain and Germany, but below countries such as Estonia, Lithuania and Latvia.
In 2019, the year before the pandemic, labour productivity in Portugal “corresponded to only 49% and 56% of that recorded in France and Germany”, signals the document. However, the Baltic countries “registered substantially higher productivity growth rates” and “are now very close to the labour productivity” registered in Portugal.