Why Portugal can be an attractive investment destination for Indians
Prime Minister António Costa of Portugal will visit India between 7 and 11 January. The agenda has been drawn up, India’s Prime Minister and President will provide audience and a few memorandum of understanding (MoUs), which have already been negotiated and drafted, will be signed. This is par for the course for a State visit from a foreign leader. The exact areas of cooperation that is covered in the MoUs are currently unclear, but if one is pressed to venture a guess, it would probably deal with increasing trade relations, cooperation in security and defence, and finally, getting some investment commitments from Portugal into India.
If, indeed, there were nothing more to this State visit, India would be losing out on a great opportunity. There is a slight folly in perceiving every country in Europe only as a potential investor and a source for inward Foreign Direct Investment (FDIs). While extremely important, India would sell itself short if it confined itself to pushing for inward FDI and “Make in India”. One of the fastest growing economies in the world should be looking at investment opportunities all over the world and particularly in Europe.
Since Brexit, India has lost its traditional pathway to Europe. Due to the historically close ties and many trade agreements with Britain, the modus operandi until now was for Indian companies to invest and produce in Great Britain and then, export it to the rest of Europe.
Now, India needs another partner country in Europe to take advantage of the common market. India has strong economic interests in the Netherlands, which continues to be one of the top destinations for outward Indian FDI.
There are presently 174 Indian companies registered and operating in the Netherlands. However, in the volatile global macroeconomic climate, India should look to hedge its investments and seek another country in Europe that can act as a gateway.
This is exactly where Portugal comes into the equation. Portugal can be one of the contenders to fill the void left by Britain. The upcoming Prime Ministerial visit can be utilised as a platform to push this agenda.
Actively pushing for Indian investment in Portugal can act as a win-win situation for both Portugal and India. India is heavily dependent on the US for its export market and foreign investment and has not been able to tap into the European common market in an impactful manner, while Portugal has high youth unemployment rate and has seen a stumbling recovery since the 2008 financial crisis.
Presently however, India’s business presence in Portugal is quite minimal. There are only a handful of companies in the hospitality industry, auto parts, renewable energy, and information technology (IT).
Why Portugal can be an attractive investment destination
Portugal offers a good business environment, well-developed physical and IT infrastructure, and a favourable climate for both short term and long-term investment. It takes around 46 minutes to set up a business there compared to 89 days in India.
Its strategic location can make it a promising gateway to the European common market. Importantly, Portugal also has one of the lowest labour and operational costs in Western Europe. In addition to its European Union membership, Portugal retains close ties with Brazil, Mozambique, Macau and Angola and can serve as ‘gateway’ to other Portuguese-speaking markets.
In the recent past, the government of Portugal has taken special measures to the simplification of tax procedures for foreign investors, improving logistics and warehousing facilities, simplification of labour laws, and the development of infrastructure.
It has also set up the AICEP—an agency for investment and foreign trade. It has also launched the Golden Visa residence programme, which is a simple and fast track residence permit programme designed to attract foreign investment into the country (coincidentally, the first recipient of the Golden Visa was an Indian hotelier).
There are sectors that are recognised as high potential in Portugal and can serve India’s interests as well. The automobile industry is quite crowded, but India can have a comparative advantage in producing two-wheelers for the Southern Europe market, along with auto parts.
The chemical industry, especially, petrochemicals and plastics, where India has a growing presence in the world, can be another sector that Indian investors can look at. Information technology, pharmaceuticals, biotechnology, and even shared services such as call centres and business process outsourcing (BPO) are attractive investment industries in Portugal. Of equal importance is to look at avenues for Indian companies to acquire foreign assets and set up joint venture projects.
In the upcoming bilateral talks, India should set the foundation for future conversations on increasing Indian investment in Portugal by creating a favourable climate for Indian investors. This can take the shape of tax investment credits, tax exemptions, aid funds, subsidies, facilitation of formalities for creating a company, financial incentives such as partial financing of a project, and regional incentives.
While attracting foreign investment to make in India is extremely important, it is also of vital significance to seek out investment opportunities for Indian companies abroad. The European common market provides a great opportunity for Indian companies to expand and Portugal has the potential to be an important gateway.
Equally, this is a big opportunity for the Portugal government as well. If there is one thing that it can do, it is to open up its market for Indian investors and woo them with incentives.
Significantly, the visiting prime minister will be visiting Goa, Maharashtra, and Gujarat—away from the traditional confines of New Delhi. It would augur well for both countries if this opportunity is utilized to facilitate talks with Indian investors so that both sides can greatly benefit.
Anupam Manur is a research fellow at the Takshashila Institution, an independent, non-partisan think tank and school of public policy