Country profile - Portugal

     Portugal is located at the extreme South-West of the Iberian Peninsula and has an area of 91,985 square kilometres. It is bounded to north and east by Spain and to west and south by the Atlantic Ocean. Portuguese territory also includes the archipelagoes of the Azores and Madeira. The Madeira archipelago lies in the Atlantic Ocean about 556 miles south-west of Lisbon and is constituted by the islands of Madeira, Porto Santo, Desertas and Selvagens. The Azores archipelago lies in the Atlantic Ocean 760 miles from Lisbon and 2110 from New York. It is constituted by nine islands and a few islets : Santa Maria, Sao Miguel, Terceira, Graciosa, Sao Jorge, Pico, Faial, Flores and Corvo.

     Portugal has a population of 10 million inhabitants, of which 9.4 million live on mainland Portugal. The population density is 107 inhabitants per square kilometre. Demographic studies indicate an annual negative population growth of 0.09% between 1990 and 1995, with life expectancy standing at 75 years of age. Portugal has one of the youngest populations in the European Union, about 25% is under 15.

     Portugal has a temperate climate with average daily temperatures ranging between 8 and 18 degrees centigrade in winter, and 16 and 30 degrees centigrade in summer. Madeira has a Mediterranean-type climate with mild, pleasant temperatures all year round, whilst the Azores have a temperate maritime climate with heavy rainfall.
4. Lisbon, the capital of Portugal, has approximately two million inhabitants. It's history goes back more than twenty centuries. As well as being a modern and cosmopolitan city, Lisbon also has distinctive medieval architecture with narrow streets where the old houses stand side by side with old palaces and imposing churches.

     Lisbon has been the venue for a number of international cultural festivals. In 1998 Lisbon hosted the last World Exposition of the century - EXPO 98 , the theme of which was "The Oceans : a heritage for the future". Portugal held the Presidency of the European Union and the Western European Union simultaneously in the first half of 1995. Portugal qualified for the Single Currency of the European Union in January 1999. Portugal successfully held the EU’s rotating six-month. Presidency during the first semester of 2000.

     At the mouth of the river Douro is Porto, the country's second largest city. Much of the city's reputation comes from the wine that bears the same name (Port wine). Porto is also known for the dynamic nature of its business and cultural life.

     Portuguese is the official language . Derived from Latin, the Portuguese language spread along the western coast of the Iberian Peninsula with the Roman invasion of 218 BC . Since then the Portuguese language has been variously influenced and altered, adopting new words used by the Germanic invaders and later, in 711, numerous Arab words after the Moorish invasion of the Peninsula. Finally words from the peoples and lands discovered and/or colonised were also adapted together with more recent French and English additions. The result is a language which is spoken in seven countries : Portugal, Brazil, Angola, Mozambique, Guinea-Bissau, Sao Tome and Cape Verde, spread over five continents, as well as the territories of Macau and East-Timor.

HISTORICAL BACKGROUND

     Portugal was occupied in succession through the centuries by Phoenicians, Celts, Romans, Visigoths, Swabians and the Arabs. The Arab presence which lasted for over 500 years from the 8th to the 12th Centuries, has left a deep imprint in the life of the country.

     The signing of the Zamora Treaty in AD 1143 marked the birth of Portugal as a sovereign country independent from the Spanish territories of Leon and Castille. Afonso Henriques was the first King . With the final expulsion of Arabs from the South of Portugal in AD 1249, the territory of Portugal was consolidated and since then maintained its territorial integrity intact to the present day. The saga of Portuguese maritime conquests began with the conquest of Ceuta from the Moors in AD 1411.

     The 15th and 16th were centuries of explorations and discoveries of maritime routes to Africa , India, the Far East and Brazil, and Colonisation. The historic voyage of Vasco da Gama to India 1497-98 marked the zenith of Portuguese maritime traditions.

     The monarchy was abolished and Portugal declared a Republic in 1910 . During the years between 1932 and 1968, Portugal suffered international isolation while under the dictatorship of Antonio Salazar. Portugal was admitted into the UN in 1955. Salazar's successor government was overthrown by popular forces masterminded by junior army officers in the Revolution of April 25, 1974.

     A period of political instability followed, with seventeen governments in thirteen years, until the rise to power of the Social Democratic Party (PSD) led by Prof. Anibal Cavaco Silva, which gained absolute majority in consecutive elections in July 1987 and October 1991. In October 1995, the Socialist Party under Antonio Guterres emerged victorious, winning 112 seats, four short of an absolute majority. In the Presidential elections held in January 1996, the Socialist mayor of Lisbon, Dr. Jorge Sampaio, won the mandate defeating the former Prime Minister and PSD leader Cavaco Silva. In the Presidential elections held on Jan. 14th, 2001, the incumbent President, Jorge Sampaio (socialist) was re-elected for a second term.

     In the Parliamentary elections held in October 1999, the Socialist Party under the leadership of Prime Minister Guterres was re-elected for a second four-year term winning 115 of the 230 seats in parliament. The new government has made an energetic start to its second term, initiating proposals on electoral reforms and the financing of political parties.

THE CONSTITUTION AND THE GOVERNMENT

     Portugal has a parliamentary system of Government. The Head of State is the President, Dr. Jorge Sampaio. The Head of Government is the Prime Minister, Mr. Durrao Barroso and the Foreign Minister is Dr Martins Da Cruz.

     The Constitution adopted in 1976 provided for Parliamentary democracy wedded to socialist ideals. The Constitution was revised in 1982, 1989 and, 1992, removing in the process its socialist bias, exercising the words 'socialism' and 'classless society' and introducing a provision for a binding referendum. Sovereignty is exercised by four organs of Government namely, the Presidency, the Assembly of the Republic (Parliament) the Government with the Prime Minister as its head and the Courts.

     The election of the President is by universal suffrage. He has a term of office of five years, and is eligible for re-election only for a 2nd consecutive term.

     The Assembly of the Republic is elected directly for four year period, under the Hondts system of proportional representation.
18. The two major political parties are the Social Democrats (PSD) and the Socialists (PS). The PSD regained power from the Socialists (who ruled for six years) in March 2002. While the Popular Party (formerly called the Centre Democratic party) represents the right wing, the Communist - Green Party coalition (Unitary Democratic Coalition, CDU) and a new parliamentary party, the Left Block (Bloco de Esquerda, BE) represent the left wing.

     In the recent elections in March 2002, the Socialist Democratic Party garnered 105 and combined with CDS-PP (14) - with whom they share an electoral alliance and formed the government - have a slender majority of 119 in the house of 230. The Socialists (PS) got 96 and the Communists (CDU) got 12 and Left Block managed to get 3 seats.

ECONOMY

     Portugal's accession to the European Union in 1986 was a historic landmark in the development of the Portuguese economy. There has been a progressive opening of the Portuguese economy to the outside world since then with the attendant increase in the average growth rate of GDP as the result of increases in consumption, investment, public expenditure and exports. The GDP growth in 1999 was 3%.

     The country is well endowed with mineral resources, copper, tin, lead, zinc, granite, marble, kaolin and uranium. It is among the ten largest producers of tungsten concentrates. It relies heavily on import of oil and other energy sources with oil accounting for 82% of primary energy needs.

     Portugal is the world's seventh-largest wine producer, and is best known for its port wine. It is the world's foremost exporter of cork and accounts for more than half of world's cork production. It is also a major producer of cellulose.

     In Industries, the textile, clothing and footwear industries are strong traditional exports accounting for between them 27.8 % (1999) of the country's exports increasingly complemented by leading high tech products like plastics industry, pressure moulds, cork-based derivatives and prestige-ware like hard-blown crystal and hand painted fine porcelain. The other industries with a competitive edge are the food and beverage industries, the ceramics industries, ship repair and maintenance industry - in the last of which Portugal is a world leader. Labour costs are still by far the lowest in Europe. Portuguese manufacturing industry includes a lot of small and medium-sized firms.

     Portugal's economy today is much more typical of a mainstream European Country; output dominated by the services sector which accounts for 64% of GDP output followed by industry at 32.7 % and then agriculture at 3.3 % (1999). Agriculture and fisheries sector has gradually lost its importance in the Portuguese economy. The slowness to adopt more productive technology in the sector has resulted in a loss of competitive advantage to more efficient producers such as Spain and France.

     Portugal has relatively low per-capita income, with USD 10,800 (1999). The unemployment rate has been less of a problem in Portugal than in most of the EU countries. In practice, there is much flexibility in the Portuguese labour force, jobless benefits are not generous and they are difficult to obtain. Job creation has accelerated in the period after the EU accession.

     Portugal's inflation rate has fallen steadily. From a recent high of 13.4% in 1990 the inflation rate in 1999 stood at 2.3 %. Success came with political stability, the formulation of coherent economic policies, a relatively tight monetary policy and moderate wage growth.

     Portugal has been a major beneficiary of EU funding and has made good use of the substantial sums pouring in from the EU to invest in infrastructure, transportation, improve educational facilities, train workers in needed skills, support farmers and otherwise raise the standard of living closer to the EU average that can also benefit foreign investors. Portugal received approximately USD $16 billion from the Structural Funds under the 1994-99 EU plan, which was roughly 3.5% of GDP annually or about 10.8% of the EU funds over the six year period. In addition, Portugal has received contributions from the Cohesion Fund established by the Maastricht Treaty . Financial assistance continue to help Portugal bridge the gap with the rest of the EU. The European Commission retained almost the same level of funding to Portugal in the 2000-2006 structural funds program. Portugal is apprehensive of a significant drop in EU support as it expends and uses every occasion to convey its concern to its more developed member states.

     Economic policy in recent years has been largely shaped by the need to meet the convergence criteria outlined in the Maastricht treaty for entry into the European single currency in 1999. Despite initial scepticism about the likelihood of Portugal meeting the criteria, the economy responded favourably to the government's orthodox policy of financial discipline, and Portugal became a founding member of the Euro in January 1999. Fiscal policy is now the main domestic instrument for regulating the economy, although the government must adhere to the EU's Stability and Growth Pact, which requires members of economic and monetary union (EMU) to keep public-sector deficits close to zero over the economic cycle and, in the case of an economic downturn, to below 3% of GDP.

     The single currency was launched in January 1999, when the value of the Portuguese currency was irrevocably fixed at 1Euro = Esc.200.482, this has eliminated exchange-rate fluctuations between members of the Euro area. The ECB has assumed responsibility for setting one monetary policy for all members of the Euro area, although its monetary stance is heavily skewed towards economic conditions in Germany, France and Italy, which together represented almost 78% of Euro area GDP in 2000. While these economies have a well established record of low inflation, Germany and Italy in particular are suffering from sluggish economic growth, in contrast to Portugal, which joined EMU at a more advanced stage of the economic cycle and continues to enjoy stronger economic growth.

     The tourism industry is one of the most important sectors of the economy, with foreign earnings accounting for 4.5% of GDP. The sector employs 6% of the active population and makes a vital contribution to the balance of payments. In the mid-1990s the sector stagnated, in contrast to the buoyancy of neighbouring Spain. Concern about the sector's performance sparked a renewed promotional campaign , and revenue picked up in 1997 and 1998, helped by a favourable exchange rate for visitors from the UK, Portugal's most important market. Moreover, the World Expo '98 in Lisbon helped to boost visitor numbers in 1998, and has also increased international awareness of the country as a destination. Over 20m foreigners visit Portugal every year, about half of whom are tourists. Most are central and northern Europeans seeking the sun and beaches of the southern Algarve region and Madeira. However, government authorities are keen to diversify attractions.

INTERNATIONAL TRADE

     In 1999 Portugal's exports totalled USD 25.7 billion and imports USD 39.8 billion leaving a trade deficit of USD 14.1 billion. Portugal ranked as the world's 33rd largest trader. With the removal of tariffs and other barriers, the Portuguese economy has become open and competitive. The exchange of merchandise has become more diversified and the direction of trade has shifted in a major way towards the other EU countries.

     By 2000, 79.4 % of all exports were sold to other EU countries while 74.0% of total imports came from the same group. As for imports, Portugal clearly is the EU country that proportionately buys the most from the other 14 partners.

     Portuguese exports have undergone a major change and exports now represent higher value added products. With the Auto-Europa plant, the Ford/Volkswagen joint venture, operating at full capacity, the most important export is now autos.

     Sales of electronic integrated circuits became the top export to Japan and accounted for nearly one-fifth of all exports to that country. Exports to the United States were dominated by linens of various types, but electronic integrated circuits ranked second in importance and together they represented nearly one-fourth of sales. On the import side , Portugal is most dependent on motor vehicles including trucks and busses, energy such as crude and refined petroleum, car parts, and automatic data processing machines. It also imports various raw materials such as cotton, which is needed by the fabrics and textiles industries.

     Inward direct investment has contributed to the modernisation and globalisation of the Portuguese economy. Foreign direct investment (FDI) is welcomed and encouraged by a variety of incentives. Portugal completely liberalised its capital markets in 1993. There are no obstacles to capital coming into the country , nor are there any restrains on the repatriation of profits, dividends or capital by non-residents. The largest FDI inflows came after Portugal's entry into the EU. According to OECD and Bank of Portugal data, US $ 18.4 billion in FDI came into Portugal up to 2000.

     Portugal was chosen by the European Football Federation to hold the European Soccer Championships in 2004. Portugal's bid came on the top beating Spanish and joint Austrian-Hungarian bids. Various promotional activities were held, clearly demonstrating Portugal's eagerness to host the event. The event is expected to stimulate the economic growth and infrastructure in Portugal during the next five years on the same lines as the World Expo-98 held in Lisbon in 1998.