investment, and investment finance in portugal, ricardo santos · 1 - a remaining substantial...

24/01/2019 1

Investment, and Investment Financein Portugal

Ricardo Santos

Lisbon21 January 2018

IntroductionRecovery in the Portuguese economy pursuing.

How to ensure it remains sustainable?

And that it contributes to rising potential growth?

Use both macro and granular information to analyse:

The investment recovery in Portugal and gaps (in volume and quality)

The innovation activity and digital transformation

The impediments and the financing environment

24/01/2019 European Investment Bank Group 2

Outline1 – Investment recovery and gaps: overall picture

2 – Intangible, Innovation and digitalization

3 – Impediments and the financial environment


1 - A remaining substantial investment gap in Portugal


Real investment by sector Real Investment by asset

Note: Cumulative change of quarterly real investment relative to the 1Q08 level, with sector-level contributions.

Source: Econ calculations, Eurostat, national authorities

Note: Cumulative change of quarterly real investment relative to the 1Q08 level, with asset class contribution.

Source: Econ calculations, Eurostat

Cumulative change relative to 1Q08 Cumulative change relative to 1Q08

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

08Q2 09Q2 10Q2 11Q2 12Q2 13Q2 14Q2 15Q2 16Q2 17Q2 18Q2

Financial corporations Government

Households and NPISH Non-financial corporations

Total

-40

-35

-30

-25

-20

-15

-10

-5

-

5

08Q2 09Q2 10Q2 11Q2 12Q2 13Q2 14Q2 15Q2 16Q2 17Q2 18Q2

Bio resources Dwellings

IPP Machinery and equipment

Other buildings and structures Total

Presenter

Presentation Notes

Investment still more than 20% below pre-crisis. All sectors are concerned, but corporate investment has recently strongly recovered, and should close its gap soon. The bulk of the gap is explained by government investment which stands at historically very low levels. Households (dwellings) also play a role. Together with government, they explain the much depressed level of other buildings and structures. Conversely, machinery and equipment now back to pre-crisis.

1 - Decline in infrastructure and growth-enhancing investment


Note: Annual infrastructure investment as a share of GDP, broken down by institutional sector.

Source: Econ calculations, Eurostat, national authorities Source: Econ calculations, Eurostat, national authorities

Infrastructure investment

per cent of GDP per cent of GDP

00.5

11.5

22.5

33.5

44.5

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Government Corporate PPP Non-PPP Proejct

0

1

2

3

4

5

6

7

07 08 09 10 11 12 13 14 15 16GFCF Investment Grants R&D and basic research

Growth-enhancing expenditure (% of GDP)

Presenter

Presentation Notes

A one-third decline in infrastructure investment, from above 3% pre-crisis to a bit more than 2% in 2015. The decline was shared among the major components. Investment in transport, communication and health were most affected thought. The policy followed to implement fiscal consolidation resulted in a decline in government contribution to infrastructure investment, from slightly less than 2% GDP in 2008 to slightly above 1% GDP in 2015. The contribution has however been recovering since 2014. Using data from the World economic forum, and taking into account the level of income per capital, the quality of infrastructure is relatively high in Portugal.

1 - Investment activity is picking up…


Note: Plots the net balance of firms set to expand investment over the percentage of firms having investment more than EUR 500 per employee. relative to the share of firms investing, by sector or Member State; cross centered on EU 2016 average.

Source: Econ EIBIS

Investment cycle Short-term influences on investment

-30

-20

-10

0

10

20

30

40

50

60

InternalFinance

ExternalFinance

SectorOutlook

EconomicClimate

Political andRegulatory

ClimateEU PT

2017AT

BE

BG

HR

CY

CZ DK

EE

FI

FR

DE

GR

HU

IE

IT

LV

LU

MTNL

PLPT

RO

SK SI

ES

SE

UK

-10

-5

0

5

10

15

20

25

30

35

55 60 65 70 75 80 85 90 95 100

Low investment expanding

Lowinvestment contracting

High investment expanding

High investment contracting

Share of firms investing (in %)

Firm

s exp

ect

ing

to

incr

eas

e/d

ecr

eas

e in

vest

men

t in

cu

rren

t fi

nan

cial

year

(n

et

bal

ance

, %)

( net balance)

Presenter

Presentation Notes

The share of firms investing is below EU average but should increase by more. Investment activity by firms this wave places Portugal in the ‘low investment expanding’ quadrant on the investment cycle. This is unchanged compared to the previous wave. The exception is the infrastructure sector, which now sits in the ‘high investment expanding’ quadrant due to its share of firms investing slightly exceeding the overall EU average. Although large firms and SMEs are both placed in the ‘low investment expanding’ quadrant, large firms do approach overall EU average in terms of share of firms investing.

Perceived investment gapshare of firms

1 - How the level of investment is perceived?


Note: Share of responses in per cent: Q. Looking back at your investment over the last 3 years, was it too much, too little, or about the right amount?

Source: Econ EIBIS

0% 20% 40% 60% 80% 100%

Large

SME

Infrastructure

Services

Construction

Manufacturing

PT 2018

PT 2017

EU 2018

EU 2017

Invested too much About the right amountInvested too little Don't Know/refused

Presenter

Presentation Notes

Around eight in ten firms believe their investment over the last three years was about the right amount (81%). Eighteen per cent report investing too little, similar to the previous wave (17%). All of the above findings are similar to the EU average, though three per cent of EU firms say they invested too much in the last three years compared with only one per cent in Portugal. Within Portugal, these patterns do not vary significantly, either by firm size or by sector. Identical to the previous wave, around six in ten firms in Portugal report operating at or above maximum capacity in the last financial year (59%). This is consistent with EC estimates for which the capacity utilisation has remained broadly unchanged in Portugal on an annual basis since 2015. However, contrastingly with EC estimates, in the EIBIS, firms in Portugal remain more likely to be operating at or above maximum capacity than firms across the EU overall (where 53% report being at or above capacity in this wave). Firms in the infrastructure and service sectors remain more likely to say they are operating at or above full capacity (70% and 66% respectively).

Future investment priorities State-of-the-art machinery and equipmentshare of firms share of total investment

1 - Why are firms investing?


Source: Econ EIBIS

Note: Share of firms by main purpose of investment, in per cent. Q. Looking ahead to the next 3 years, which is your investment priority (a) replacing existing buildings, machinery, equipment, IT; (b) expanding capacity for existing products/services; (c) developing or introducing new products, processes, services?

Source: Econ EIBIS

0%

20%

40%

60%

80%

100%

EU 2

017

EU 2

018

PT 2

017

PT 2

018

Man

ufac

turin

g

Cons

truc

tion

Serv

ices

Infr

astr

uctu

re

SME

Larg

e

Capacity expansion Replacement New products No investment planned

0%

20%

40%

60%

80%

AT DE SK HU LU ES IT MT EE SI IE NL LV FI BE DK HR SE PT CZ UK FR PL LT RO BG

State-of-the-art machinery and equipment 2017

Note: Average of responses in per cent: Q. What proportion, if any, of your machinery and equipment, including ICT, would you say is state-of-the-art?

Presenter

Presentation Notes

Last year The largest share of investment in Portugal is driven by the need to replace existing buildings, machinery, equipment and IT (52%), in line with the pattern across the EU (where the equivalent share is 50%). Within Portugal, the share accounted for by replacement investment is highest in the construction and infrastructure sectors (61% and 59% respectively), and lowest in manufacturing (43%). The share of investment allocated to capacity expansion is highest in manufacturing (34%) and among large firms (31%). Looking forward Wile remaining largest, the share of investment driven by the need to replace existing buildings, machinery, equipment and IT is expected to decline, contrastingly wit the EU. The expected decline is especially pronounced for SMEs and in the construction sector. In both cases, it reflects the absence of planned investment and more investment geared towards capacity expansion.

Areas of investment

average share allocated

1 - Which investments are firms focusing on?


Note: Average of responses for allocations by area in per cent: Q. In the last financial year, how much did your business invest in each of the following with the intention of maintaining or increasing your company’s future earnings?

Source: Econ EIBIS

0%

20%

40%

60%

80%

100%

EU 20

17

EU 20

18

PT 20

17

PT 20

18

Man

ufac

turin

g

Cons

truct

ion

Serv

ices

Infra

struc

ture

SME

Larg

e

Land, business buildings and infrastructure Machinery and equipment

R&D Software, data, IT, website

Training of employees Organisation/business processes

Presenter

Presentation Notes

Of the six investment areas asked about, the highest share of investment in Portugal is in machinery and equipment (47%), followed by land, business buildings and infrastructure (19%) and software, data and IT (11%). While the pattern is similar to the previous wave and EU-wide findings, firms in Portugal invest a higher share on land, buildings and infrastructure than the EU average (19% versus 16%), and a lower share on R&D (4% versus 8%). Within Portugal, there are few variations by firm size or sector, but manufacturing firms spend more on R&D (9% versus 1%-3% in other sectors). SMEs invest a higher share on software, data, IT and website activities (14%, compared to 8% for large firms). Innovation Activity Among all firms, nearly half (46%) developed or introduced new products, processes or services as part of their investment activities. This compares favourably with both the previous wave (29%) and this year’s EU average (35%). Seven per cent of firms in Portugal claim to have undertaken innovation that is new to the global market, similar to the 8% EU-wide. More than half of manufacturing firms undertook innovation activity (52%), closely followed by services firms (48%), but only 31% of construction firms reported doing the same. Large firms are more likely to innovate than SMEs (respectively 51% and 43%).

2- Innovation and growth


Innovation and productivity High growth enterprises by technology intensity of the sector

Note:

Source: Eurostat and EIB calculations

Note: Share of high growth enterprises (HGEs, in %), by technology intensity of the sector

Source: EIBIS 2018

ATBEBG

HR

CYCZ

DK

EE

FI

FR

DEELHU

IE

IT

LV

LTLU

MT

NL

PO

PT

RO

SK

SI

ESSEUK

8

10

12

14

16

18

20

22

80 85 90 95 100 105 110

Shar

e of

inve

stm

ent i

n ne

w p

rodu

cts,

pr

oces

ses o

r ser

vice

s (in

%)

Tota l factor productivi ty (100 = EU in 2017)0 2 4 6 8 10 12 14

Other knowledge-intensive services

Knowledge-intensive market services

High-tech knowledge-intensive services

Low-technology manufacturing

Medium-low-technology manufacturing

Medium-high-technology manufacturing

High-technology manufacturing

Serv

ices

Man

ufa

ctur

ing

(%)

Presenter

Presentation Notes


Innovation activityAverage share allocated

2 – How do companies innovate?


Note: Average of responses in per cent: Q. What proportion of total investment was for developing or introducing new products, processes, services? Q. Were the products, processes or services new to the company, new to the country, new to the global market?

Source: Econ EIBIS

0%

20%

40%

60%

80%

100%

EU 20

17

EU 20

18

PT 20

17

PT 20

18

Manu

factur

ing

Cons

tructi

on

Servi

ces

Infras

tructu

re

SME

Large

No Innovation New to the Company

New to the Country New to the World

Presenter

Presentation Notes


2 – Portuguese investment in R&D is still below the EU average


Source: Eurostat

Presenter

Presentation Notes


2 - Digitalisation


Share of firms that have adopted digital technologies

Share of firms that reported not having invested enough in the last three years

Source: EIB calculations based on the EIBIS 2018 and EIBIS Digital and Skills Survey 2018

0

10

20

30

40

50

60

US EU US EU

Manufacturing ServicesSh

are

of fi

rms

(in %

)

0

10

20

30

40

50

60

70

80

90

EU US EU US

Shar

e of

firm

s (in

%)

Adopted in Part Entire Business organised around

(%)(%)

Presenter

Presentation Notes


Long-term barriers to investmentshare of responses

3 - Uncertainty, regulation and energy costs major impediments to investment, relatively more in Portugal


Note: Share of responses in per cent: Q. Thinking about your investment activities, to what extent is each of the following an obstacle? Is a major obstacle, a minor obstacle or not an obstacle at all?

Source: Econ EIBIS

0% 20% 40% 60% 80% 100%

Uncertainty about the future

Availability of finance

Adequate transport infrastructure

Business regulations

Labour market regulations

Access to digital infrastructure

Energy costs

Availability of skilled staff

Demand for product or service

EU 2018 PT 2018 2017

Presenter

Presentation Notes

Around eight out of ten firms consider uncertainty about the future and business regulations as obstacles to investment activities (84% and 80% respectively). Both are more likely to be seen as barriers in Portugal than EU-wide (where the equivalent figures are 71% and 63%). Energy costs are a barrier for 78% of firms, again higher than the EU average. Availability of skilled staff is an obstacle for 72% of firms, both in Portugal and EU-wide, with this figure having increased at both levels since the previous wave. There are important differences across sectors. Construction firms are most likely to consider skilled staff availability, business and labour market regulations and availability of finance as obstacles.

Source of investment financeaverage proportion average proportion

3 - Source of finance


Type of external investment financing

Note: Average of responses in per cent: Q. What proportion of your investment was financed by each of the following?

Source: Econ EIBIS

Note: Q. Approximately what proportion of your external finance does each of the following represent?

Source: Econ EIBIS

0%

20%

40%

60%

80%

100%

EU 20

17

EU 20

18

PT 20

17

PT 20

18

Man

ufactu

ring

Cons

tructi

on

Servi

ces

Infras

tructu

re

SME

Large

External Internal Intra-group

0%

20%

40%

60%

80%

100%

EU 2

017

EU 2

018

PT 2

017

PT 2

018

Man

ufac

turin

g

Cons

truc

tion

Serv

ices

Infr

astr

uctu

re

SME

Larg

e

Bank loan Other bank financeBonds EquityLeasing FactoringNon-institutional loans GrantsOther

Presenter

Presentation Notes

Bank loans still account for more than half of external finance (52%), though this is lower than the 63% share recorded in the previous wave. The next highest shares are leasing and hire (20% of external finance) and non-loan bank finance such as overdrafts and other credit lines (14%). The situation in Portugal mirrors the EU-wide breakdown: among external financing sources, bank finance remains the most important. Bank loans still account for more than half of external finance (52%), though this is lower than the 63% share recorded in the previous wave. The next highest shares are leasing and hire (20% of external finance) and non-loan bank finance such as overdrafts and other credit lines (14%). Within Portugal, leasing accounts for a slightly higher share of infrastructure firms’ external finance than bank loans (38% versus 36%), making it different from the other sectors where bank finance dominates.

3 - Diversity of access to finance across the EU

24/01/2019 18

Financing cross

Source: EIBIS16, 17 and 18.Notes: All firms. Firms indicating main reason for not applying for external finance was ‘happy to use internal finance/didn’t need finance’. Financial Constraint indicator includes: rejected, too expensive and discouraged.

EU 18Per 18

PT 18

EU 17

Per 17 PT 17

EU 16

Per 16

PT 16

ManufacturingLarge

SME

Construction

Infrastructure

Services

4

6

8

10

12

14

16

18

20

0 2 4 6 8 10 12 14 16

Firm

s hap

py to

use

inte

rnal

fina

nce

(%)

Share or finance constrained firms (%)

Improvment

per cent share of responses

3 – Share of finance constrained firms is now the same as in the EU


Share of finance constrained firms Dissatisfaction with external finance

Note: Proportion of firms considering themselves finance constrained: Finance constrained firms include: those dissatisfied with the amount of finance obtained (received less), firms that sought external finance but did not receive it (rejected) and those who did not seek external finance because they thought borrowing costs would be too high (too expensive) or they would be turned down (discouraged)Source: Econ EIBIS

Note: Average share of responses, in per cent Q. How satisfied or dissatisfied are you with ….?

Source: Econ EIBIS

0% 5% 10% 15% 20%

Type of finance

Collateral

Length of time

Cost

Amount obtained

Portugal EU 20170% 2% 4% 6% 8% 10% 12% 14%

Large

SME

Infrastructure

Services

Construction

Manufacturing

PT 2018

PT 2017

EU 2018

EU 2017

Rejected Received less Too expensive Discouraged

Presenter

Presentation Notes

Thirteen per cent of all firms can be considered finance constrained, which is higher than the EU average (7%). This increases to 21% of firms that did not invest in the last financial year. Compared to the previous wave, the share of finance constrained firms has declined. The share of corporations reporting finance constrains is stronger for SMEs than for large corporations (respectively 15% and 10%). The share is also larger for corporations in the manufacturing sector than for those in the services sector (respectively 17% and 11%). The highest proportion of dissatisfaction in Portugal is with the cost of finance (14%), closely followed by the collateral required (13%). Across the EU, more firms are dissatisfied with the collateral required (8%). A major reduction in dissatisfaction with the cost of external finance happened between the two waves.

Share of firms with financial constraintsDifference between Domestic and Foreign Owned Firms

share of responses share of responses in per cent

3 – Foreign owned firms face less constrains


Note: Share of responses in per cent: Q. Thinking about your investment activities, to what extent is each of the following is a major obstacle?

Source: Econ EIBIS

Note: Share of responses in per cent: Q. Thinking about your investment activities, to what extent is availability of finance a constrain?

Source: Econ EIBIS

0

4

8

12

16

16 17 18

Home owned Foreign owned Total-20 -15 -10 -5 0 5 10 15 20

Demand

Availability staff

Energy

Digital access

LM reg

Business reg

Transport

Availability finance

Uncertainty

EU28 Portugal

Presenter

Presentation Notes

Around eight out of ten firms consider uncertainty about the future and business regulations as obstacles to investment activities (84% and 80% respectively). Both are more likely to be seen as barriers in Portugal than EU-wide (where the equivalent figures are 71% and 63%). Energy costs are a barrier for 78% of firms, again higher than the EU average. Availability of skilled staff is an obstacle for 72% of firms, both in Portugal and EU-wide, with this figure having increased at both levels since the previous wave. There are important differences across sectors. Construction firms are most likely to consider skilled staff availability, business and labour market regulations and availability of finance as obstacles.

3 – Innovative firms face higher financing constrains

24/01/2019 21

Differences between innovative and non innovative companies

Source: EIBIS16 and 17 Notes: Difference vs non innovative (=100)

Summary Still a 20% investment gap but more firms increased than reduced investment in the last

financial year. A large part of the gap reflects still weak investment by the government and households.

Firms hold a positive investment outlook for the current financial year, with large firms and infrastructure sector firms being the most positive. However, short term tailwinds are weaker than in last year.

15% of firms report investing too little in the last three years, similar to the EU average and below the previous wave.

Stands in the lower part of the EU distribution in terms of intangible investment. The average share of state-of-the art machinery and equipment in firms is also below the EU average (37% versus 45%).

Uncertainty about the future is the main barrier to investment, followed by energy costs and regulation (both business and labour market) and– all more so in Portugal than EU-wide. Foreign owned firms are less constrained than those domestically owned.

Only 5% of firms are finance constrained, down from 12% in the previous wave, and now in line with the EU average.


Thank you


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