Portugal's tech-fuelled turnaround

The Portuguese have witnessed a start-up boom over the past seven years that has, and is, supporting the country’s successful and impressive economic bounceback.

Portugal is now one of Europe’s economic and political success stories. Just 10 years ago, however, the country was mired in a deep financial crisis. Unable to repay its government debt in 2010, Portugal received a €78bn bail-out package, which it successfully exited in mid-2014.

Back from the brink

The country’s impressive economic recovery has since outshone fellow crisis victims Greece and Spain, largely due to Portugal’s political stability, tourism industry and technology boom, as well as a fiscal policy that has boosted business confidence, made investment easier, and accelerated growth in exports and, increasingly, services. Subsequently, the job market has significantly improved, with unemployment falling to 6.7% in June 2018, the lowest since 2004 and a big improvement from 2013’s all-time high of 17.5%, according to research company Trading Economics.

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

Foreign investment figures reflect this positive trend, with 2018 seeing the highest number of greenfield projects into Portugal since 2003, the majority of which went into software and IT services, according to greenfield investment monitor fDi Markets.

Tech boom

Portuguese tech is particularly hot right now. The EU Startup Monitor 2018 says London, Berlin, Paris, Copenhagen and the Portuguese capital of Lisbon are the biggest hubs for start-ups in Europe. Walking around Porto or Lisbon’s latest co-working spaces, and speaking to a dozen leading tech companies in slick new offices, one can feel the buzz.

The past decade has witnessed rapid growth in the number of Portuguese tech start-ups, such as Farfetch, Talkdesk, Uniplaces and Unbabel. Farfetch, now publicly listed and  headquartered in London, was the first Portuguese tech unicorn (a company valued at more than $1bn), now joined by Talkdesk and Outsystems.

In terms of scale-ups in ICT, Portugal grew twice as fast as the European average in 2017, according to a report from the Startup Europe Partnership initiative, which defines 'scale-ups' as start-ups that have raised more than $1m. International investors have played a central role in this, accounting for 62% of capital made available to scale-ups, and 86% of later stage rounds.

Feel the space

Reflecting and fuelling Portugal’s tech boom is the rapid growth in new office space. “There’s an incredible amount of coworking space for start-ups in Lisbon, they keep popping up. We have a Factory co-working space, from the same people [behind] Factory Berlin”, says Alexandre Vaz, managing director of Mercedes-Benz.io, a tech arm of Mercedes-Benz, based in Lisbon.

Another example is Hub Creative do Beato, a former factory that is being transformed into  a 35,000-square-metre mega-start-up campus, thereby competing with Paris’s renowned Station F incubator in terms of size.

In the longer term, Portugal’s tech boom has been made possible by several decades of high-quality education and strategic government funding in traditional and modern engineering. In the shorter term, however, it seems that the economic crisis has been a catalyst. Mr Vaz says: “The start-up economy in Portugal started with the crisis. There weren’t enough jobs, so people started to test out new ideas and companies. The push from the government worked quite well too, creating a system for seed capital, and then private players jumped in.” 

When the economic crisis hit Portugal, many young, highly qualified people had two choices: emigrate or create their own jobs, according to João Barros CEO of Veniam, one of Portugal’s most successful start-ups.

The arrival of Web Summit to Lisbon, replacing Dublin as host, was another game changer. As one of the hottest tech conferences in the world, it attracts more than 80,000 attendees from more than 170 countries. Impressed by Lisbon’s digital infrastructure, ecosystem and more, Web Summit recently agreed to stay in Lisbon for another 10 years.

Hello Google

Numbers talk, and the fast-rising value of Portugal’s burgeoning tech ecosystem is shown by the 15% increase in foreign tech companies active in the country, according to Aicep, the Portuguese government’s trade and investment promotion agency.  

Portugal has seen four years of consecutive greenfield FDI growth in software and IT – both in capital expenditure and project numbers – with 2018 setting historic highs, according to fDi Markets.

Moreover, Faber Ventures, one of the main institutional investors seeding Portuguese start-ups, sees 75% to 80% of its investment coming from abroad, according to Carlos Silva, an executive at Faber. “From an investor’s perspective, Portugal is one of the fastest growing ecosystems in Europe, but we still have to reach maturity. So, things tend to be undervalued, which means there’s some very interesting investing opportunities under the radar,” he says.

Google has recognised this, opening a support centre on the outskirts of Lisbon and creating 500 tech jobs for skilled workers. Add to this BMW, Mercedes, Volkswagen, BNP Paribas, Natixis, Zalando, Bosch and Siemens and Euronext in recent years, among many others who are moving or expanding their tech functions in Portugal. Microsoft and Amazon are also scoping the market.

“I’ve seen a tremendous change in investor perception about Portugal since my first fundraising seven years ago. Increasingly in places such as Silicon Valley, London and New York, Portugal is perceived as a start-up nation and a hard-tech location,” says Veniam’s Mr Barros, who founded the company with the creators of ZipCar.

Investment rationale

So why are foreign investors getting involved in Portugal? “IT talent, geography, timezone and culture; everyone speaks English, and there is a nice cost [of living and of labour],” says Margarida Marques, vice-president of Hitachi Consulting in Lisbon. Talent is key, however. “Portugal’s universities are top ranking, providing a pool of highly qualified engineering talent in multiple areas thanks to government investment in a lot on tech [apprenticeships] and university courses,” adds Ms Marques.

Indeed, the country has the second highest rate of engineering graduates in Europe, according to Eurostat.

Portugal was ranked 17th out of the world’s 63 leading economies in IMD’s World Talent Report 2018, coming fifth in language skills, eighth for skilled labour and 14th for university education. English is widely spoken across Portugal, more so than in Spain or France, as shown by the English Proficiency Index 2018, which ranks the Portuguese 19th best in the world among non-English speaking countries.