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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
THE INTERNATIONALISATION AND
DIGITALISATION
OF THE PORTUGUESE ECONOMY
R. Doménech, R. Falbo, A. Marín, M. Montañez, A. Neut and M. Cabezas
Portugal, from here to where? Macroeconomic Challenges for the next decade
Lisbon, May 19, 2017
1
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
Contents
Internationalisation & Digitalisation
1. Challenges to internationalisation
Improvement in export margins
Policies to boost competitiveness
2. The age of digitalisation
Why digitalisation?
Portugal’s positioning
Opportunities, risks and challenges
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
Main messages
INTERNATIONALISATION: Portugal’s convergence with the major advanced economies
requires increases in employment and productivity
Dual economy in which many firms
do not promote the accumulation of
human capital, innovation and trade
in international markets
The size of firms and its
determinants, product market
regulations and the environment for
doing business are of paramount
importance
DIGITISATION: All this in a more
globalised world economy
undergoing an unprecedented and
disruptive technological revolution
3
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Globalisation and new products and sales channels bring obvious benefits to consumers, but
new challenges for producers
Portugal, a dual economy: good (but relatively few) exporters, many with low productivity
firms exposed to international competition
Portugal suffered an adjustment to its share of world exports (much larger than in Spain and
Germany) and currently finds itself below other EU countries
Despite this, the diversification of Portugal’s exports in terms of products and countries is
relatively high, according to the Atlas of Economic Complexity (2012-2014)
The complexity, connectivity and value of opportunity (for trade to grow) of the Portuguese
economy are also relatively high
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Share in world exports and real effective exchange rate
30
DIN
IT
CAN
GR
IRL
RU
FIN
HOL
EE.UU
FR
20
ESP
10
AT
ALE
0
PRT
SUE
-10
-20
JP
-30
Change in relative exports prices (%), 20002015
40
-40
-55
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
5
Change in the share of world exports (%), 2000-2015
5
Source: Correa-López and Doménech (2012)
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Complexity, connectivity and distribution by sector of Portugal’s exports (average 2012-2014, the size of the
bubble representing the sector’s proportional contribution to GDP)
4,0
Machinery
3,0
Electronics
Chemicals & Health
Pulp &Paper
Other Chemicals
Complexity
2,0
Not Classified
Aircraft
Home & Office
1,0
Textile & Fabrics
Beer & Spitrits
Cereals & Vegetables Oils
Leather
Mining
Animal Fibers
0,0
-1,0
-2,0
Oil
Tobacco
Tropical Agriculture
Milk & Cheese Boilers
Petrochemicals
Ships
Metal Products
Meat & Eggs
Agrochemicals Food Processing
Inorganic Fruit
Salts & Acids
Garments
Misc Agriculture
Construction Material &
Equipment
Fish & Seafood
Cotton, Rice, Soy & Others
-3,0
0,10
0,12
0,14
0,16
0,18
0,20
0,22
0,24
Connectedness
6
Source: Correa-López and Doménech (2012)
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Complexity and value of opportunity
(2013)
4,5
3,5
Opportunity value
PRT
2,5
NLD
1,5
KOR
ESP
CHE
FIN
BEL
CHN
GBR
DNK
0,5
SWE
-0,5
USA
AUT
-1,5
-0,5
0
0,5
1
1,5
2
2,5
Complexity
Source: Andrés and Doménech (2015) based on Hausmann et al (2014)
Andrés, J. and Doménech, R. (2015): En Busca de la Prosperidad. (In
Search of Prosperity) Deusto. www.enbuscadelaprosperidad.com
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Exports and size of the country
120
HUN
IRL
Exports in 2013 (GDP %)
100
SLK
EST
BEL
SLN
NLD
CZE
80
KOR
AUT
60
DNK
DEU
CHE
FIN
40
POL
SWE
CHI
NOR
ESP
PRT
NZL
ISR
CAN
GRE
20
ITA
FRA
AUS
MEX
GBR
TUR
USA
JAP
0
12
13
14
15
16
17
18
19
20
Active population (logs)
8
Source: Andrés and Doménech (2015).
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Improvement in international competitiveness
Need for a more efficient and inclusive labour market to be accompanied by improved
policies and product market competition regulations, reduced administrative burden and
fewer barriers to internationalisation
Portugal can take advantage of globalisation by improving its position in world value chains,
as some emerging countries are already doing
Portugal needs to improve both its intensive margin (more exports per firms) and extensive
margin (more exporters)
It is necessary to understand the determinants of firms internationalisation. These depend on
a large number of economic, legal and institutional factors, all of which boil down to company
size, a key determinant of competitiveness
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Company size and productivity
Employment and productivity
(2010)
100%
USA
95%
CHE
GDP per hour (USA=100)
90%
AUS
NLD
85%
IRL
BEL
80%
AUT
GBR
JAP
75%
DEU
SWE
DNK
FIN
FRA
70%
65%
ITA
60%
55%
GRE
NZL
ESP
PRT
50%
10
15
20
25
30
35
40
45
50
55
Employment share in firms with 250+ workers (manufactures)
10
Source: Andrés and Doménech (2015) based on OECD Entrepreneurship at a Glance (2013)
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Why are firms small?
Level of development, size of the market and population density
Two-way causal link with the level of development
Lucas, 1978: as wages and productivity increase, working for a large company becomes
more attractive than being a small entrepreneur
Human capital (Lucas, 1978): existing distribution of human capital, with the ability to
manage medium and large firms, plus interaction with small family-owned firms
Institutions, regulations in product markets (Nicoletti et al., 2001) and labour markets
(Garicano et al., 2013) and taxation (Almunia and López-Rodríguez, 2014)
Access to external funding
Sector specialisation: composition effects at the country level
Performance and effectiveness of the legal system (Kumar et al, 2001, García-Posada and
Mora-Sanguinetti, 2013): legal security and certainty
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Why are firms small?
Human capital and company size
Employment share in firms with 250+ workers
(manufactures)
55
USA
FIN
50
DEU
AUT
45
BEL
GBR
DNK
SWE
FRA
IRL
40
AUS
CHE
NZL
35
ESP
NLD
30
ITA
25
JPN
20
PRT
GRC
15
10
8
9
10
11
12
13
14
Mean years of schooling (of adults), 2014
12
Source: Andrés and Doménech (2015).
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Why are firms small?
Product market regulations and company size
Employment share in firms with less than 20
workers, 2006
36
GRE
PRT
31
ITA
ESP
26
NZL
JAP
21
NLD
GBR
FRA
NOR
AUT
16
BEL
AUS
DEU
SWE
DNK
FIN
11
USA
IRE
6
0,8
1,0
1,2
1,4
1,6
1,8
2,0
Product market regulation index, OECD, 2003
13
Source: Cuerpo, Doménech and González-Calbet (2011)
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Main characteristics of large firms
Greater productivity
Greater probability of survival
Lower percentage of temporary employment and greater internal flexibility
Lower volatility of employment over the business cycle (Haltiwanger, Scarpetta and
Schweiger, 2014)
Higher levels of human capital
Greater access to external funding
Greater technological and physical capital per worker and more innovation and spending on
R&D -> digital and technological transformation
Greater probability of exports
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
1.- Challenges to internationalisation
Size, productivity and competitiveness
Labour
markets
Capital
markets
Regulations
& business
climate
Innovation, R&D
& digitalisation
•
Better regulation and greater internal flexibility: a dysfunctional labour market can be a
significant barrier to international trade -> a more efficient and inclusive labour market
•
Better human capital at every level, especially in management positions
•
Better financing, financial information and risk assessment
•
Greater incentives and more support for SMEs when internationalising
•
Incentives for mergers and acquisitions -> deleveraging
•
Strategic objective: to be among the top ten economies in Doing Business (administrative
burden, single market, tax regime, etc.) and other rankings
•
Improve competition in the markets for intermediate inputs, such as services and energy
•
Eliminate barriers, thresholds and discontinuities, reduce administrative burdenInstitutional
improvements and more effective judicial system: legal certainty
•
PPPs with major technological institutes specialising in the transfer of knowledge, technology
and product and process innovation to SMEs (e.g., Fraunhofer in Germany (see Comín et al.,
2011), ITRI in Taiwan, ETRI in South Korea and TNO in the Netherlands)
•
Digitalisation is a tool for dealing with a more complex and globalised world.
•
National digital agendas seek to drive economic and social growth, focusing on three main
challenges: the high rate of unemployment, an ageing population and low productivity
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
A more productive economy in the age of
digitalisation
DIGITALISATION: Process of innovation that implements technology to improve services, both
new and existing, and the use of information
Digital activity is growing faster
than general economic activity, a
reality that will continue in the future
Digitalisation addresses some
existing problems of a
macroeconomic nature (high
unemployment, low productivity and
population ageing)
It allows firms to grow in size,
increase productivity, develop new
activities and open up new markets
16
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
Why digitalisation?
From a macroeconomic perspective there are significant challenges in three important
determinants of GDP:
High
rate of unemployment
Ageing
population
Digitalisation is a tool for dealing with a more complex
and globalised world.
Lower
productivity
National digital agencies seek to drive economic and
social growth
17
17
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
Why digitalisation?
GDP per capita and Digital Economy and Society
Index (€ in PPP and value of the index)
55.000
IRE
50.000
NOR
45.000
40.000
GDP pc PPP 2015
Adaptation to the new
technologies is a key element in
the improvement of the most
developed societies.
Despite increasing in recent
years, Portugal’s spending on ICT
as a proportion of GDP per capita
is still low compared with that of
the major EU 15 countries.
A World Bank study estimates
that an additional 10 percentage
points of broadband penetration
would increase the GDP growth
of developed countries by 1.2
percentage points*
AUS
ALE
BEL SUE
35.000
FRA
30.000
UK
IT
CHKESP
CHI
SLK
MAL
PRT
25.000
20.000
GRE
15.000
RUM
BUL
POL
HUN
HOL
DIN
FIN
LIT
LET
EST
CRO
10.000
5.000
0
30
* Average between 1980 and 2006. Controlling for convergence, investment per capita and human capital
Source: BBVA Research based on INE and Eurostat
50
70
90
Digital Economy and Society Index 2016
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
What does digitalisation involve?
Improved
supply
New products and
areas of business
Increase in
productivity:
digitalisation of
processes,
reduction of trade
costs
Better knowledge of
customers: Big Data
Facilitates
interaction with
suppliers
Increased
demand
Changes in
attitudes of
consumers to
demanding greater
personalisation,
convenience and
speed
Access to new
customers and
niche markets
Improved competitiveness
Facilitates dealings
with government
agencies and
departments
Improvements in
efficiency, services
and knowledge of
government
agencies and
departments
Impact on human
capital
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
BBVA digitalisation index
• 3G or higher coverage
• Competitiveness of the Internet and
telephony market (% companies)
• Broadband speed
• Broadband tariffs ($, PPP)
• Number of secure servers
PUBLIC SECTOR
• Index of digital
government services
Government
Content
• Number of laws relating to ICT
• Piracy in software
2016
• Legal efficiency index
Firms’
adoption
User
adoption
• % of firms that interact with
other firms online
• % of firms accepting online
orders
• % of firms employing ICT
specialists
• Mobile subscriptions (% of persons)
• Broadband subscriptions (% of
households)
2018
• Use of social media (% of persons)
• Households with internet access (%)
• Individuals’ Internet use
(% of persons)
DEMAND
• Judicial independence index
Regulation
Accessibility
SUPPLY
Infrastructure
20
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
The situation in Portugal
Not all Portuguese firms are taking advantage of the possibilities offered by ICT
According to INE, of the 64% of firms with 10 or more employees in Portugal that had a
website in 2016 (size matters):
ONLINE ORDERS OR
RESERVATIONS
ONLINE PRODUCT
CATALOGUE OR
PRICE LIST
ONLINE ORDER
TRACKING
E-COMMERCE
PURCHASING
USE OF SECURITY
PROTOCOLS
Only 2 in every
10 firms
Nearly 70% of
firms
only 1 in 10 firms
20% of firms
30% of firms
21
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
Big data serving citizens
Open data: initiatives that make data generated by government agencies and departments
available to society for new services
Types of data
Infrastructure
Results (examples)
• National statistics
Data aggregation portals
• Smart cities
• Budget and public spending
• European Data Portal
• National maps
• INE
• Improvements in medical
research
• Public agencies (such as
meteorological institutes)
• Public transport networks
• Improve matching process
between vacancies and
unemployment …
… and many other
examples
22
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
Portugal’s positioning in Europe
Comparison with Digital Index 2015
Global
1
Luxembourg
Score
1.00
Menor que 0,4
Entre 0,4 y 0,5
Entre 0,5 y 0,6
Entre 0,6 y 0,7
Mayor que 0,7
0.77
16
Germany
20
France
30
Spain
0.63
32
Portugal
0.59
52
Italy
0.45
* Ranking of a sample of 100 countries
Source: BBVA Research
0.76
< 0.4
From 0.4 to 0.5
From 0.5 to 0.6
From 0.6 to 0.7
> 0.7
23
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
Portugal’s position in Europe
Digital Economy and Society Index in Europe, 2016
105
NO
SENL FI DK
LU
95
FR
85
HU
PRT ES
75
65
TR
AT
SK
MT
IT PL
RO
EL
CZ
IS HR
CY
MK
55
BG
BE IE
UK
DE EE
There is a high degree of
correlation between the
BBVA digitisation index and
DESI (the EU’s Digital
Economy and Society
Index) (0.86 in countries)
Portugal lags behind
other EU countries
The challenge of double
convergence: between
regions and on the border
45
35
25
Source: BBVA Research based on Eurostat (2016) and INE (2015)
24
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THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
Portugal’s positioning in Europe
Digital Economy and Society Index and Regional Competitiveness Index in Europe
Ditigal Economy and Society Index, 2016
90
80
Lisboa
70
RA Açores RA Madeira
Algarve
60
Norte
Alentejo
Centro
50
40
30
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
Regional Competitiveness Index, 2016
Source: BBVA Research based on Eurostat (2016), INE (2015) and Annoni and Dijkstra (2013)
High degree of correlation between regional competitiveness and economy and society
index. Improvements in human capital and institutional quality will be crucial
25
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
Opportunities and risks
Opportunities
E-commerce has grown considerably in recent years in Portugal. In 2008, 20%
of firms used e-commerce, compared with 8% in 2004
Digitalisation is an instrument with which SMEs can open up new markets and
export
It leads to simpler processes and favours outsourcing
Risks
Increased competition: anyone can be a potential competitor
Slow adaptation of regulatory frameworks to the new digital activities
26
Source: Cardoso and Marín (2016)
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
2.- The age of digitalisation
Challenges
1.
2.
3.
4.
Improve ITC infrastructures and cybersecurity
Main barriers to buying online
(% of individuals)
0
Interact digitally with government
Provide a uniform regulatory framework
Improve agents’digital knowledge and
skills
5.
Offer access to funding and investment
6.
Eliminate barriers to e-commerce
5
10
15
20
25
30
35
40
Consumers prefer
to buy in person
Security of
payment
Concerns about
incidents
Lack of necessary
skills
Consumers with no
payment card
7.
Assure and provide consumer protection
when using e-commerce
Problems with
receiving goods
Other reasons
PORTUGAL
EUROPEAN UNION
27
Source: BBVA Research based on ICT Survey (INE)
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
Conclusions
The main challenge for the Portuguese economy is to increase employment and
productivity in order to reduce the unemployment rate without the imbalances
seen in the past
Competing in international markets is essential for the Portuguese economy,
which must try to raise the contribution of exports to GDP above 80%
Growth will depend on the reallocation of resources from less dynamic and
competitive firms to those with higher growth potential and international
competitiveness
This requires economic policies in the labour, capital and product markets in
order to improve competitiveness and boost extensive and intensive export
margins, promoting the growth of firms through better regulations and a more
favourable business climate
28
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
Conclusions
Short- and long-term complementary strategies
In the long term, competing with better quality, greater productivity, innovation and
human capital is the best strategy (as many emerging economies are doing, such as
South Korea)
But in the short term, internal devaluation must ensure the reallocation of resources
from non-tradable products with low demand to competitive and valuable tradable
products
Increase employment and productivity taking maximum advantage of the opportunity
that the current technological transformation and digitalisation, as a tool for dealing
with a more complex and globalised world
29
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
Contacts
Rafael Doménech
[email protected]
Rodrigo Falbo
[email protected]
Antonio Marín
[email protected]
Miriam Montañez
[email protected]
Alejandro Neut
[email protected]
Manuel Cabezas
[email protected]
30
THE INTERNATIONALISATION & DIGITALISATION
OF PORTUGAL’S ECONOMY
THE INTERNATIONALISATION AND
DIGITALISATION
OF THE PORTUGUESE ECONOMY
R. Doménech, R. Falbo, A. Marín, M. Montañez, A. Neut and M. Cabezas
Portugal, from here to where? Macroeconomic Challenges for the next decade
Lisbon, May 19, 2017
31