Portugal’s ICT Sector

Missed boat or Golden goose?

Alvaro Santos Pereira

The Portuguese are perceived as being innately technological

The Background

• Portugal is currently immersed in a serious economic crisis

• Worst economic performance since the early 1900s

• Many of the country’s traditional industries display several competitiveness problems, while other sectors are no longer competitive

The success

• Still, Portugal was one of the most successful countries in Europe in the postwar period

• The Portuguese economy had the second highest rate of growth in Europe after WWII

• In spite of current crisis, the country is no strange to success

The BIG questions

• What went wrong?

• What can we do to get an end to the crisis and reinvigorate the success of the Portuguese economy?

• Can the ICT sector be the driving force behind economic recovery?

• Can the ICT sector be a cluster of excellence in Portugal?

What went wrong?

• The euro

• Globalization and new international competitors in the traditional industries

• Previous economic model no longer viable

• Inadequate economic and fiscal policies

What can be done?

• Better economic policy• Some improvement in the last few years• Lower bureaucracy and reform of the Justice system

• Investment in the quality of human capital

• Improved incentives and better rewards to innovation

• More incentives to entrepreneurship

Can the ICT sector be the driving force for a brave new world?

• Some of the most successful (and more interesting) examples of Portuguese entrepreneurship emerged in the ICT sector

• Can these examples be emulated by others?• How?

• What can the State do to help?

The FACTS

• Undeniably, some of the most interesting examples of Portuguese entrepreneurship can be found in this sector

• Undeniably, there has been great progress in the last decade

• Undeniably, the idea of a Technological Plan is a good one

However…

• Are we really sure that the ICT sector is progressing as well as it could?

• Are we really sure that the State is helping the sector as well as it should?

Taking a look at the Facts

• In spite of some improvement, Portuguese ICT infrastructure still lags vis-à-vis its European counterparts

% Internet access is still low

Broadband penetration still lags

E-commerce needs to become more pervasive

• On a more positive note, the exports of ICTshave increased substantially

Exports of ICT equipment have tripled in the last decade

• Still, in relative terms, the performance of the ICT sector is not so impressive

The share of ICT employment did not increase

• The share of ICT-related occupations in the total economy did not increase in the last decade:

ICT-related employment is still small

Portuguese high-tech exports are still below the EU average…

Fast growth of high-tech products seems to have petered out

The share of ICT in manufacturing value added is low

And the share of ICT in total manufacturing has declined

The share of ICT investment in total capital formation has not increased in the

last 10 years

Venture capital is still insufficient

• Venture capital for early and replacement investment has increased

• However, and in spite of the extraordinary dynamism shown by ICT entrepreneurs, venture capital is still inadequate for a sector (and a country) that aims to become a golden cluster.

Moral of the story

• The ICT sector is one of the most dynamic and innovative in the Portuguese economy

• It exhibits an unusual degree of entrepreneurship for Portuguese standards

• It is a sector that aims to compete internationally and is able to do so

• However, it is still not a national champion, as it could be– Technological Plan is not helping as well as it could

What can be done

• Continue to promote entrepreneurship within the sector and to develop networking linkages

• Continue to innovate and compete internationally

• Continue to improve human capital in order to solve supply shortage of skilled individuals

What can be done (II)

• Constant pursuit of productivity gains• Relative low wages cannot be sustained forever without the

threat of brain drain of most productive individuals

• Consolidate• Sector is constituted mostly by SMEs

• Go Public• In order to grow, companies need to enter stock markets• Sector could attract more foreign and national venture

capital firms

Why the State has to help

• Although Technological Plan is a good start, so far, it has not had a major impact in industry

• Focus of the Technological Plan should be redirected to promote the emergence of more entrepreneurs as well as to increase the support for start-ups

• If we really believe that the sector has a bright future ahead, then the State should support and nurture its development

• How?

Renewed incentives/commitment

• ICT sector should be regarded as strategic as the renewable energies cluster

• How can the sector be helped?• Unprecedented tax breaks for exporting companies• Unprecedented tax credits for companies that hire new

graduates• Unprecedented tax and economic incentives for companies• New lines of credit for ICT companies that want to compete

internationally• Unprecedented labor market flexibility (national cluster of

excellence)

One last thought

• Portuguese success is certainly more guaranteed if we decide to invest in the knowledge highway rather in the construction of additional highways