- Funding Programme
- Year
- 2021
The impact of regulation on international investment in Portugal: opportunities and challenges for structural reforms
With the support of the European Commission, the project was launched to investigate the reasons behind Portugal’s persistently low investment levels, which are holding back productivity growth and the country’s green transition objectives.
Context
Portugal needs further investments to support productivity growth and its intended transition to a carbon-neutral economy by 2050. Portugal’s current investment levels remain among the lowest in the EU. FDI activity has improved over the last decade as a result of structural reforms that boosted investor confidence but Portugal’s levels of exports and FDI remain low compared to other small EU economies. Furthermore, the pace of new FDI projects has trended downwards in recent years. The post-Covid global economic slowdown added to structural challenges as FDI plunged. The OECD reported a 46% drop in global FDI inflows in the first half of 2020 compared to the same period in 2019. Beyond some structural challenges, other factors, such as regulatory impediments to the entry and operations of foreign businesses, labour market regulations, low levels of competition in some sectors and excessive red-tape, could be holding back foreign investment in Portugal and may help to explain its low levels of trade and investments compared to EU peers. Against this backdrop, this project aimed to assess why international investment activity remains depressed and, particularly, if regulatory impediments are partly to blame.
The TSI 2021 project aimed to gain a better understanding of the discriminatory and non-discriminatory regulations influencing Portugal’s ability to attract and retain FDI and shed some light on the road to a sustainable recovery from the current COVID-19 crisis.
Support delivered
The project produced the following outputs:
- Overview of recent trends in FDI performance, consisting of analysis of Portugal and comparison vis à vis a selected number of similar European countries (in terms of FDI statistics, foreign affiliate statistics, trade in value added data, cross-border firm-level transactions, trends in investment in digital technologies, renewable energies and new sustainable solutions).
- Review and analysis of the regulatory framework for FDI in Portugal (regulatory aspects affecting market entry conditions, competition, red tape, labour market regulation, in depth assessment of sector-specific regulation in strategic sectors, such as ICT and digital technologies, professional services, financial services, transport, distribution, logistics, etc.; regulatory inconsistencies and divergences within the EU).
- Report on the main drivers of and obstacles to FDI in Portugal (quantitative analysis exploiting the richness of firm-level databases to provide a detailed description of the main drivers and barriers to investment decisions, qualitative assessment of the investment climate in Portugal).
- Policy recommendation (concrete and actionable suggestions for policy reforms that could improve the business environment and further attract more sustainable and inclusive foreign investment).
- Validation workshop to discuss the policy recommendations and further strengthen inter-governmental dialogue, which will be pivotal for their holistic implementation in practice.
Results achieved
Better understanding of regulatory deficiencies that may be holding back investment, which in turn will help design and implement structural reforms aimed at improving Portugal’s ability to attract and retain high quality foreign investments for a more sustainable and inclusive growth.
The TSI assisted Portugal to understand better regulatory deficiencies that may hinder investment, thereby aiding in the design and implementation of structural reforms aimed at improving Portugal's ability to attract and retain high-quality foreign investments for more sustainable and inclusive growth.
As such, the project supported Portugal’s strategic priorities for the next decade included in the “Estratégia Portugal 2030”, and particularly in the “Internacionalizar 2030” programme.
More about the project
You can read the documents related to the project here: