Edited by Fernando Alexandre, Investimento Empresarial is written by Economy professors at the Universities of Minho and Coimbra. It is not only about the Algarve, but explains some problems that we face. It urges structural improvements. It says that between 2001 and 2007, investment in Portugal was the lowest in the eurozone. The crisis has brought it to a minimum in many decades.
The authors emphasise that the EU, "required public policies to boost competitiveness and a financial system to direct capital to tradable sectors,” but that it, "directed resources to the non-tradable sectors, protected from international competition,” (p.9). It resulted in high public and private indebtedness.
P.11: "Companies that fail to meet their financial obligations, but stay alive with the support of banks," generate a huge bad credit. This brings economic stagnation. It is an obstacle to urgent structural change. Debt and "difficulty in controlling public spending appear to be the greatest risk to investors, given they expect future tax increases."
P.15: "In the first decade of the 21st century (before debt in some countries of the eurozone (reached a critical point) the investment rate was low: 0.8% in Europe at 12 and only 0.3% in Portugal." In the 70s we grew more than Western Europe and approached the purchasing power parity of the 12. Productivity stagnated in 2000 and fell between 2007/14. Capital growth without increasing productivity is not durable; increasing capital with the rest constant leads to a drop in new investments.
In p.20 they say that since 2003 the gap between Portugal and the eurozone of 12 countries increased. Real investment in Portugal fell by 3.2%. In 2001/16, in addition to Portugal, only Greece and Italy lost investment. In 2001/16, in the eurzone, Ireland, France and Germany developed; Portugal and Greece lost most.
Table 2.4 shows that along 2000/16 investment rate fell from 28% to 14%, "the lowest in the EZ and minimum values in recent decades." Table 2.5 shows the investment in housing that after the peak of 9% of GDP in 2000 fell to 3%. Until 2005 investing in housing was mainly private, from then on it is business speculation. Another study shows there are 440,000 empty homes for rent for more than a year, 300,000 more than normal.
"Eurozone condemns countries like Portugal to stagnation ... (because it) competes with very differently structured economies"
P.26: "Over the past 20 years, investment in non-tradable sectors exceeded 65% of the total." PPPs: By giving away highways "in exchange for future payments, it was the private sector that appeared to be indebted to finance them, although it did so with the comfort of a contract signed with the state." Other wastes: Stadia for Euro 2004, roundabouts and Parque Escolar.
Public works are, “in history, a major strategic mistake. On construction, the country already has the essential infrastructure ... now it is necessary to move on to another phase."
P.29: "Tourism was the sector that contributed most to improving the balance of goods and services with a variation of almost 2 points of GDP ... to 4.1%."
From 2008 to 2016 investment in the industry fell from 35% to 9% and rose in speculative real estate and finances from 35% to 70%. P.37: "One group says that the architecture of the eurozone condemns countries like Portugal to stagnation ... (because it) competes with very differently structured economies. As a result, economies with weaker productivity have been grappling with trade deficits."
Others say that wages are high; the euro halts the "devaluation of the currency to compensate for what it sees as penalizing wage levels ... for this group, the resources of the economy are too concentrated in the non-tradable sectors."
Finally, it is vital that "the criteria for granting credit are adequate," and "contribute to the structural change of the economy". Cutting public spending is vital. This book will be discussed on April 20th at the University of Coimbra.
