Europe & world

Economy: Portugal, glittering prize for emerging nations

6 December 2011
Expresso Lisbon

To cut its debt, Portugal’s government has embarked on a far-reaching privatisation program. Brazilian, Chinese and Angolans are the main candidates for taking over its national enterprises.

On one side are giants like the public companies Eletrobras and Cemig (Brazil), the Three Gorges Corporation and the State Grid Corporation (China), and even Angola’s Sonangol, all from emerging powers and growing economies. On the other are companies of modest size on the global scale. Their shareholders have empty pockets, and the country is in deep trouble, forced to undertake a heavy program of privatisations imposed by a bailout plan.

Brazil, China and Angola, along with Germany and the United Kingdom, are the main potential buyers of Portuguese public enterprises, stocks or stakes in companies put up for sale. Energias de Portugal (EDP) and REN (Rede Electrica Nacional) are already on the table, and in 2012 privatisations will move on to the oil company Galp; the airline TAP; ANA, which manages the airports; CP Carga (rail freight); and CTT, Portugal’s postal service. Naturally, it’s the companies most open to international business and that carry out the greater part of their operations abroad that are generating the greatest interest.

But then, why these potential buyers and not others? The answer is in principle quite simple: because they have the money. It’s a question of price, and for giants such as Brazil and China, the price is even more enticing. Angola on the other hand is a special case, as are Germany and the UK. Here the interests are not merely financial.

A way to win favour with Germany

“Angola’s investments in Portugal have a strong political component: it’s a way for the country to assert itself in the Portuguese-speaking sphere, which it hopes to benefit from economically,” believes António Ennes Ferreira, a professor at the Instituto Superior de Economia e Gestão at the Technical University of Lisbon. But it is also, he adds, a way of legitimising Angolan capital, scrutinised less carefully in Portugal than elsewhere, and to gain entry into other markets. Given the lack of transparency, the risk is that the precise identity of the investor may never be known.

Angola is investing only financially, not contributing know-how. With Germany, a candidate for the purchase of EDP, and courted by the Portuguese Prime Minister Pedro Passos Coelho himself, the process is different. While Germany may find an interest in associating with Portugal in Africa, where it is at present thin on the ground, for Portugal its involvement is a “European affair,” a way to win favour with Germany and bring it on side with Portugal at this time of crises in Europe.

Brazil and China are both giants that are nurturing global ambitions, but each is a special case. For Brazil, which has invested in Portugal for several decades, these new operations are distinguished by their size and by the entry in force of the Brazilian state at political and industrial levels. “This is a watermark of strong political support,” says Brazilian Ambassador Mário Vilalva, echoing the words of President Dilma Roussef to Portuguese Prime Minister Passos Coelho: “It is in our interest to ensure that Portugal gets out of this crisis as quickly as possible.”

The Brazilian National Bank for Development (BNDES) actively supports the internationalisation of Brazilian companies, which see Portugal as a springboard to the markets in the rest of Europe. Moreover, they are mainly targeting companies that are “of interest” due to their presence on the world market, such as the cement company Cimpor (the Brazilians bought a stake in 2010), EDP, and even Radio e Televisão de Portugal (RTP), whose expansion into Portuguese-speaking countries of Africa (PALOP) is a significant asset.

“Reap the revenue”

For the Chinese, the Portuguese privatisations are a chance to penetrate another European market, a vulnerable one moreover, and which has unique ties with Portuguese-speaking Lusophone Africa. The country also, though, has access to technology – and, by the way (why not?) can get around or neutralise certain protectionist barriers.

“One mustn’t forget China’s willingness to pave the way for the expansion of its companies in the global marketplace through a process of learning and by poaching executives,” adds researcher Miguel Santos Neves. The interest shown in Energias de Portugal is revealing. At a time when China has launched an extensive program to improve its energy efficiency, this leading renewable energy company, very well established in the U.S. and Brazil, exerts an irresistible appeal. Through it, the Chinese want to kill two birds with one stone: acquire technical skills, and penetrate markets where China’s size is already provoking protectionist reflexes.

For the moment, Portugal’s priority is to “reap the revenue”. The country, though, is not indifferent to who wins the race to privatisation. It seems more than likely, however, that it’s the Brazilians, Chinese and Angolans who, one way or another, are shuffling the cards of the privatisations in Portugal.