US companies in Portugal upbeat about 2024

Survey find CEOs of US companies in Portugal more upbeat about the prospects for business in 2024 than at any time since pandemic

By CHRIS GRAEME
[email protected]

Last year, Portugal had a lot to be pleased about. Despite the outlook for national economic recovery continuing to be sluggish, with so many uncertainties on the international stage – high interest rates, inflation, energy and production costs, lack of labour with skills that match Portuguese companies’ needs, two ongoing wars and one major flashpoint in the Red Sea – the country is faring better than many of its more advanced European partners, with an above EU member state average growth rate of 2.3% GDP/Capita (GDP of €376 billion – World Economics), and an impressive public debt reduction to 98.7% of GDP, according to the Bank of Portugal.

In 2022, Portugal enjoyed the best year ever in terms of Foreign Direct Investment (FDI) from the United States, now becoming its fourth most important market, overtaking the UK and accounting for 19% of total FDI in Portugal.

And, according to the latest report from the Bank of Portugal, total US-Portugal FDI stood at €8,378 million by the end of Q3, compared to €7,990 million like-for-like in 2022.
In fact, looking back over a decade or so, the amount of total FDI in Portugal between 2008 and 2023 doubled. So, despite the health, financial, and geopolitical crises in Europe, the US and across the globe, it’s all looking surprisingly good, with Portugal and its companies, including American ones, holding up pretty well compared to many of its EU partners.

Improved expectations for 2024

The expectations of US companies operating in Portugal for this year are certainly better than last year.

This was evident if you happened to sit in on a breakfast debate on Tuesday at Lisbon’s Marriott Hotel on the ‘Expectations and Prospects from US Companies and Investors for 2024’, organised by the American Chamber of Commerce in Portugal (AmCham).
The debate featured the findings of the 3rd AmCham Barometer, produced in partnership with business consultancy PwC and presented by its director José Bizarro Duarte.

In the survey canvassing the CEOs of around 30 US companies in Portugal on what they perceived to be the main concerns for the country and the business environment in 2024, inflation and the cost of living were among the Top 5 concerns, while the issues of health, access to affordable housing, and the high tax burden all equally featured at the top.

The CEOs, many of them Portuguese, were also concerned about political stability – there is a general election in Portugal in March -, and the funding of Portugal’s increasingly over-stretched national health and education systems, facing a constant round of industrial disputes over low wages and poor working conditions, also loomed large.

Interestingly enough, climate change worries, which featured higher up on the list in European studies, were not so urgent for the CEOs of US companies in Portugal, neither was the migration issue compared to the European average.

Less pessimism among US companies

Overall, however, the study found that there was less pessimism among the directors of US companies in Portugal regarding 2024 than there had been in 2023.

Last year, 57% of CEOs were pessimistic about the international economic situation, but this year that number fell back to 42%.

Canvassing the CEOs on how they felt about the economic situation in Portugal, 35% were pessimistic (54% in 2023), and 42%.

Nevertheless, despite the many headwinds and insecurities around the globe, 71% thought their business turnovers and investments would increase (a little down on 2023 at 75%). And the expectation on fresh investments rose from 55% last year to 68% this year.

As for the workforce, 45% thought numbers would stay the same, but 39% of CEOs thought they would take on more staff this year.

Elections major worry

When it came to the greatest challenges to economic development, the top worry at 84% was the elections, running neck-to-neck with climate change (84%) and inflation and interest rate increase fears – the third biggest worry – at 77%.

Other factors such as economic instability (74%), and tax instability and mounting social security obligations (74%) were also high up on the list of potential woes for 2024.

Not surprisingly, cybersecurity threats also loomed large for the CEOs of American companies in Portugal (71% overall) with 52% seeing them as a threat for their companies in Portugal and 52% for their specific sector.
The other problem that concerns companies in Portugal is attracting and keeping talent (61%), with 71% having the perception that Portugal was losing its talent overseas.

It was pointed out at the event that this year would see 40% of the world voting in elections, but neither companies (19%) nor sectors (32%) seemed particularly fazed, except, unsurprisingly, in the case of the elections in Portugal next month, on March 10 (48%).

José Bizarro Duarte pointed to a start of the year marked by new challenges and disturbing disruptions at geopolitical levels, including the ongoing war in Ukraine and the war in the Middle East beginning in the last quarter of 2023, tensions between economic blocs in a world that was increasingly polarised.

There were also macroeconomic challenges after the interruptions to world supply chains as a result of the Covid-19 pandemic, the context of high inflation (and stagflation in some countries), and high interest rates, with the Western world continuing to lose economic clout worldwide, added to some restrictions in terms of international commercial trade.

Environmental and Portugal-specific challenges

Other challenges to do with sustainability also featured, with the response from some countries not being very positive in this respect within the context of a world of climate change, energy transition, the challenges of decarbonisation, and migration.

The rise of Artificial Intelligence (AI) and its ethical use, as well as increasing cybersecurity issues, disinformation and fake news, would also continue to dominate, according to the survey.

Regarding the question of AI, 39% agreed it was an important and major challenge for their companies, and 61% believed it was vital for Portugal and it and digitalisation would change the way in which companies worked, created wealth and value, and related with partners and clients, so this was high on the list of priorities for managers of US companies in Portugal.

On a microeconomic level, the challenge of Portugal’s low growth, its difficulty in creating wealth and value, together with the cost-of-living increases, increased interest rates on mortgages and company loans, and the high tax burden would likely persist in 2024.

José Bizarro Duarte, in his conclusions, said that with so many uncertainties in the world, companies needed to be agile and adapt quickly to the unknowns in an increasingly complex world.

“Today we have to be cooperative, even in sectors that are notoriously competitive, and work in networks in order to increase capacity and gain critical mass,” he said, adding that acting in an atomised or individualist way would not favour overcoming the adverse situations and challenges facing Portuguese and US companies in Portugal.