Porto: from gloom to economic boom

Guided by a pro-business mayor, Porto is experiencing a business and tourism boom as Portugal rebounds from the economic crisis. Unlike most European cities its size, Porto boasts a river and a coast. As Portugal’s second largest city, it houses roughly 230,000 inhabitants and more than 1.9 million in its metropolitan region, located in northern Portugal.

For many centuries, 2000-year old Porto was one of Europe's leading hubs for maritime trade, and later industrial activity, from which the city’s internationally renowned port wine was exported.

Porto’s crown jewel is its historic centre, the Ribeira, a Unesco World Heritage site that scales the hilly banks of the river Douro. Spared from two devastating earthquakes that flattened Lisbon, the Ribeira is remarkably well preserved.

Indeed, Porto offers a surreal combination of the medieval, baroque and 19th-century worlds, all in a Mediterranean setting. Looking down from the city’s 12th-century cathedral, terracotta tiles cascade down to Porto’s iconic Dom Luís I Bridge, a 19th-century masterpiece and one of six crossings in the ‘city of bridges’, as Porto is known.

Hard times

Despite such cultural riches, Porto only recently began to realise its business potential. “If you came to the city 10 or even five years ago, it was completely different. It was a land of no investment. Unemployment and abandonment was high in the city centre. There were drugs and safety problems,” says Ricardo Guimarães, director of Confidencial Imobiliário magazine, a Portuguese real estate data provider.

Porto’s economic troubles began in the 1990s when Portugal’s manufacturing industry lost significant ground to its Asian competition. Clothes, shoes, furniture and other production lines were significantly undermined.

The situation only worsened. Following years of internal economic problems that started around the turn of the century, Portugal was hit hard by the global financial crisis, leaving it unable to repay its government debt in 2010. The country received a €78bn bail-out package from the European Financial Stabilisation Mechanism, the European Financial Stability Facility and the IMF, which it successfully exited in mid-2014.

Portugal revitalised

In the past few years, Porto, like the rest of Portugal, has benefited from a significantly improved job market as well as strengthened fiscal and net trading positions, supported by export revenues continuing to grow significantly, according to Peter Holden, group development director at Round Hill Capital, a UK-headquartered global real estate investment and asset management firm that put €100m into a mixed-use regeneration project in Porto in 2018.  

“This was helped by the government, [which since 2015 has moved] to reverse the cuts in wages, pensions and social security, and offer incentives to business, [thereby] boosting business confidence and growth in production and exports”, he says.

Indeed, Portugal's GDP witnessed 1.9% annual growth in 2016 and a 2.1% budget deficit, the lowest since 1974. The following year saw the country's highest growth rate since 2000, at 2.8%, while 2018 is estimated to have hit 2.1% according to BBVA Research.

FDI figures reflect this positive trend, with 2018 seeing the highest number of greenfield projects in Portugal since 2003, according to data from greenfield investment monitor fDi Markets.

Perfect storm

Porto fell, and then rose, with the national economic tide, but has also undertaken ambitious initiatives to overcome the slump.

“Civil society took matters into its own hands. We saw the rise of a strong, entrepreneurial tech-based ecosystem and of hi-tech manufacturing. Our universities improved – this is the best educated generation [that this country has ever seen]. [Also] we’ve had a mayor since 2013 who is a politically [independent] businessman.. So, it has been a perfect storm for the past five years,” says Rui Coutinho, executive director of the Center for Business Innovation at Porto Business School.

Indeed, the number of jobs created by foreign investors grew by more than 300% in Porto and northern Portugal between 2013 to 2016, according to local IPA InvestPorto. The region saw the most FDI in the whole of Portugal in 2016 and 2017.

In 2018, Porto alone attracted its highest number of greenfield foreign investments in terms of projects and capital expenditure since the 2008 crisis, according to fDi Markets.

“We [in Porto] have fought hard to bring it alive again. We’re no longer a city for natives; we're a global city. Our value has changed. There’s a new economy rising, oriented to talent and tourism,” says Mr Guimarães.

From the top

Rui Moreira, Porto’s mayor, was re-elected in 2017 to further his business-friendly agenda that has opened the city to more investment. The mayor established InvestPorto in 2015, which is a one-stop shop for investors, and structures his executive team, all ex-private sector, like a company, according to Ricardo Valente, Porto’s minister of economy, tourism and commerce.

“We found a mayor a with a very different vision for the city, one that’s open to the world... If you talk to businessmen and ask: ‘What’s the difference between Porto and Lisbon?’, it’s governance. It’s the way that we manage the city,” he adds.

“We appreciate the positive engagement we have received from Porto City Council and InvestPorto, which gives us great confidence in the future of this project,” says Michael Bickford, founder and CEO of real estate investor Round Hill Capital, which has embarked on projects in Porto.

Similar sentiments were voiced by Dr Tiago Violas Ferreira, CEO of Violas Ferreira, a Portuguese real estate company. “[The mayor] is very Porto-focused, independent and doesn’t go along with the politics of the government. Everyone likes him. He’s good for business, but focused on social care too”.

Safe haven

With Portugal’s general elections in October 2019, foreign investors will be eyeing their likely impact on the country’s investment climate. Since 2015, the country has been governed by a coalition comprised of the Socialist Party, on the centre-left, and the radical left-wing Left Bloc.

“I think that the Socialist Party will win the elections by a majority, and then we will not need the extreme left. [Subsequently], they will be even more business-friendly,” says Mr Ferreira.

However, Portugal has successfully retained investors’ attention since 2015, despite ushering in a government with a left-wing base, according to Mr Guimarães. “So, the hard part is over, and the next election will either repeat the same situation we have now, or bring a more central result that is even more attractive to investors,” he adds.

There is agreement among political parties on most major topics, such as foreign investment, says Mr Coutinho. “This is why [little changed after the 2015 elections], and why we don’t have extreme right populist movements coming in. We’re very tolerant towards immigration,” he adds.

Considering Brexit and the global rise of right-wing populism, Portugal serves as one of Europe’s political safe havens.

“In Portugal and Porto we’re very dependent on foreign investments. Our biggest threat is what’s happening in the world. A recession in Germany would be a disaster for us. If globalisation [turns to] nationalisation, we’d face a big impact on tourism and FDI,” says Mr Valente.