PORTUGUESE FOREIGN DIRECT INVESTMENT

Portuguese Foreign Direct Investment Overseas

Portuguese foreign direct investment (PFDI) increased substantially during the 90s, reflecting the growing involvement of Portuguese companies on the international market. Up until 2000, PFDI increases were enormous, transforming Portugal into a net exporter of capital, an inversion of its traditional role. However, PFDI declined after 2001, owing to the corporate scenario having dampened down, on both the domestic and foreign markets.

PFDIO Growth - 2005 (a)

Source: The Bank of Portugal
(millions of euros)
(a) Portuguese Direct Foreign Investment Overseas (gross)

Up until 1990, foreign investment had been channeled, mostly to Europe and the US, and in particular to the UK, Spain, the US and France. Between 1991 and 1995, Spain was, by far, the top destination for Portuguese investment, with it having accounted for more than 40% of the total in 1995. It was a period in which Portuguese companies discovered the potentialities in their neighboring country. Meanwhile, from 1996 there was a noticeable change in that trend, translating to a greater geographical diversification of destinations for PFDI, with the EU share dropping from 80% in 1995 to 46% in 2000. Brazil emerged as the favorite market for Portuguese investors, going on to account for 40% of PFDI in 1998.

However, in 2001, once again there was a greater concentration of Portuguese investment in the EU markets, with The Netherlands to the fore, followed by Spain. In 2001, the EU once again accounted for 81% of the total of PFDI. These shifts were the outcome of the dynamic produced by corporate strategies. This situation was created by the greater vulnerability of investments made in Latin America, with Brazil, in 2001, having accounted for 9%. A percentage much lower than in previous years. In 2002, the two prime destinations for PFDI were also EU countries. That is to say, Spain and The Netherlands, but Brazil rose to a more important position, with its being the third destination. In 2004, the European Union position was prominent, with Denmark, The Netherlands and Spain in the top three places, followed by Brazil. In 2005, the situation was very similar, with the European Union marking the distance, with the first three places going to The Netherlands, Spain and Greece, followed by Canada and Brazil in 5th place.

It would appear that, in recent years, there has been a greater diversification of destinations for Portuguese investment. In fact, aside from the Brazilian option, there has been an increase in the importance of the countries of Central and Eastern Europe, reflecting a resolve and the capacity to develop a global positioning. Portuguese investment in Portuguese-speaking African countries has also accompanied the growth in PFDI, namely in Angola.

Direct Portuguese Investment Overseas
by Country of Destination 2005 (a)

Source: The Bank of Portugal
(millions of euros)
(a) Direct Portuguese Investment Overseas (gross)

In recent years, namely, between 1996 and 2003 (in accumulated terms), Portuguese investments by sector of activity were made mainly on real estate activities and services to companies, which accounted for more than half the total. These were followed by financial, transportation, warehousing and communications activities, along with those of commerce, repairs, accommodation and catering. The processing industry accounted for only a small part of the total. In 2004, PFDI was focused on activities involving real estate and services to companies (87.0% of the total), followed by, with a vast gap, commerce, repairs, accommodation and catering (4.2%), financial activities (4.1%) and the processing industry (2.5%).  In 2005, activities involving real estate, leases and services to companies had a lesser impact, but still a major one (58,3%), while financial activities also produced a lesser impact than the previous year (18,6%), followed by the processing industry (8.3%).

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Foreign Direct Investment in Portugal

Foreign direct investment (FDI) in Portugal increased intensely at the beginning of the 90s, going to high levels in 1993-1994, which coincided with the Autoeuropa project - the highest foreign investment made in Portugal. Meanwhile, a decline was experienced in the mid-90s, followed by an accentuated upturn in 2000-2001, occurring at the height of international mergers and acquisitions. The worldwide economic climate produced a new drop in FDI in Portugal, in 2002, but in 2003 it was almost restored to its previous level, recording an increase of 48.4%. In 2004 another decline was experienced, although a less accentuated one, placing the level of FDI below that recorded for 2001. 2005 saw a new decline, but not so accentuated, of 11.7%.

FDI Growth - 2005 (a)

Source: The Bank of Portugal
(millions of Euros)
(a) Foreign Direct investment (gross)

The EU constitutes the principal source of foreign capital. In recent years, namely between 1996 and 2003 (in accumulated terms), the major investor countries were the UK, Germany, France, The Netherlands, Spain, Belgium/Luxemburg, Finland and the US. In 2004, the countries that most invested in Portugal were the same, but in a different order, with first place being occupied by Spain, followed by the UK, Germany, The Netherlands, France, Finland, Belgium and the US. In 2005, once again it was the EU that occupied the top places, with 1st place going to Germany, followed by The Netherlands, UK, France and Spain. The US ranked 8th.

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FDI by Country of Origin - 2005 (a)

Source: The Bank of Portugal
(Million of euros)
(a) Direct Foreign Investment (gross)

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According to distribution by sectors, the processing industry is the principal sector of investment. During the 1996-2003 period (in accumulated terms), the processing industry accounted for more than two-fifths of the total invested, followed by activities involving real estate and services to companies, commerce, repairs, accommodation and catering, transportation and communications and financial ones. In 2004, the processing industry continued to lead (30.1% of the total), followed by commerce, repairs, accommodation and catering (28.2%), real estate and services provided to companies (24.1%) and financial activities (10.7%). In 2005, the processing industry had already bolstered its position (32.9%), wholesale and retail trade, repairs, accommodation and catering continued steady (28.6%), with real estate activities and services to companies down slightly (21.6%). Financial activities also dropped off slightly in 2005 (7.9%).

FDI by Sector - 2005 (a)

Source: The Bank of Portugal
(a) Direct Foreign Investment (gross)