Portugal Thinks Big With Spending Plan to Keep Expansion Rolling

(Bloomberg) -- Portugal’s economy minister doesn’t want his country to slow down. In the wake of an impressive comeback from an international bailout, with six straight years of growth, he’s calling for $14 billion in spending to keep the expansion going.

“The country is hungry for new investment,” Pedro Siza Vieira said in an interview Feb. 13, and the government is planning to spend about 10 billion euros ($10.8 billion) in the next four years on infrastructure projects with the private sector expected to provide additional money.

Some of the funds in the new investment plan, which calls for works including upgrades to roads, railways and public transportation, will come from the European Union, Siza Vieira said at the economy ministry, set in a palace in central Lisbon.

European Central Bank officials have warned governments to make better use of public funds to help spur growth. That suggests working to improve conditions on the ground in order to attract businesses.

For Portugal, transportation infrastructure could be a good place to start. It can take 12 hours by train to travel the 625 kilometers (388 miles) from Lisbon to Madrid, compared with just over two hours for Paris to Bordeaux, a slightly shorter distance.

Private investors are expected to pump in an additional 3 billion euros for the Portuguese plan, which also envisages a second airport in Lisbon and expansion of the nation’s biggest port.

Better land, air and sea connections with the rest of the world will enable the country to play a bigger role as an entry and exit point for goods to and from the EU, said Siza Vieira, a lawyer and former managing partner at Linklaters LLP.

Improved links may also convince investors to move production to Portugal, Siza Vieira said. “It’s critical that we enhance the most decisive factor of Portugal’s competitiveness, our geographical location,” he said. Portugal is the westernmost nation in mainland Europe.

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The government is also looking to attract auto makers investing in electric-powered vehicles. Volkswagen AG’s Autoeuropa plant near Lisbon has become one of the country’s biggest exporters.

“We are concerned about whether this sector can make a shift toward electric vehicles, which we believe will be the future of mobility,” said the 55-year-old Siza Vieira. “There are plans to start producing electric cars here,” he said, without giving details.

Brain Drain

For Portugal, keeping up the momentum comes with a unique challenge: building modern infrastructure requires the type of skilled workers who left the country during the economic crisis and the 2011 to 2014 bailout.

The government is trying to convince some of them to return, offering tax cuts and cash for relocation. About 1,500 have signed up for the “Return” program since it began last year, Siza Vieira said.

“The financial crisis all but destroyed this industry,” Siza Vieira said, referring to construction and engineering. “Our professionals fled to everywhere else in the world.”

While the global economy faces uncertainties, Portugal should continue to grow on a “very sound basis,” Siza Vieira said, and it’s aiming this year to post its first budget surplus in four decades of democracy.

Portugal’s economy outpaced the euro-area’s growth in 2019, helping the country’s minority Socialist government cut the jobless rate and narrow the budget deficit. The Bank of Portugal forecasts growth will slow to 1.7% this year.

Gross domestic product expanded 2% last year, ahead of the government’s 1.9% forecast, but lower than the 2.4% in 2018, according to the National Statistics Institute.

Beating Forecasts

Asked if growth in 2020 could surpass the government’s forecast, Siza Vieira said, “we’ve always beaten projections.”

Siza Vieira said Brexit hasn’t had an impact on the Portuguese economy so far, and U.K. nationals were again the biggest group of visitors to Portugal last year.

“The largest trade surplus we have is with the U.K.,” Siza Vieira said. “We favor a situation where post-Brexit, after this transition period, the relations between the U.K. and the EU remain as close as possible.”

In addition to the planned infrastructure projects, Portugal is also planning to boost investment in the national health service while sticking to fiscal discipline and reducing the country’s debt burden, the third-highest in the euro area behind Greece and Italy.

To contact the reporters on this story: Henrique Almeida in Lisbon at halmeida5@bloomberg.net;Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Jerrold Colten, Andrew Blackman

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