Surging Portugal Exports Led by Volkswagen Signaling a Recovery

Perched above the Atlantic Ocean in the port of Sines, 15th century explorer Vasco da Gama is overseeing Portugal’s efforts for an economic revival.

The bronze statue of the town’s most famous native, the first man to sail to India from Europe, overlooks the bay where ships with multicolored cargo transport marble, paper and machinery from Portuguese factories to Africa and Asia. The volume of exports from Sines jumped 27 percent last year.

“The biggest movement we see now is loading and unloading containers,” Diogo Oliveira, 33, a factory worker who has spent his life in Sines, said at the Atlantico restaurant next to the Nossa Senhora das Salas church, which da Gama ordered to be built on his return from India in 1499. “Before we practically only saw the loading and unloading of coal.”

As Europe’s indebted nations try to chart their way to recovery from the continent’s most debilitating economic crisis since World War II, Portugal is delving deep into its history by reviving commercial routes that its navigators pioneered.

The central bank in Lisbon reported the first trade surplus in at least six decades in 2012 as consumers spend less on imports and lower labor costs help revive manufacturing in Europe. Shipments from Portugal include Scirocco cars made by Volkswagen AG and fuel refined by Galp Energia SGPS SA, the country’s two biggest exporters. There are also PSA Peugeot Citroen vans, Leica cameras, and plates for Ikea Group.

Exporting Marble

Marble mined and finished by Bloco B Lda. and acrylic fibers made by Fibras Sinteticas de Portugal SA are among the goods sent from Sines. Bloco B’s biggest market is Saudi Arabia and almost all the marble this year is headed for abroad, Joao Barreiro da Silva, who runs the company, said last week.

“This definitely reflects a trend in Portugal,” Barreiro da Silva said at his office. “There is still a lot of work to do. We are almost halfway through the economic adjustment.”

Between the office and the factory, blocks of white marble are lined up under the sun before being processed. Some of the material will be used to refurbish a luxury hotel in Milan.

Sines, 150 kilometers (93 miles) south of Lisbon, was the second fastest-growing port in Europe last year after Poland’s Gdansk based on container traffic, according to the Administracao do Porto de Sines SA authority. Poland is the only country in the 27-member European Union to avoid recession during the debt crisis.

New Routes

Mediterranean Shipping Co., a Geneva-based container line calling at 316 ports, started a new weekly stop at Sines on March 21 for its Pendulum Service that will also round the Cape of Good Hope, the route first taken by da Gama in 1497. The company said it was responding to demand from Portuguese exporters. It follows a link between Sines and former colony Angola that started in November.

“The new emerging economies and the crisis in Europe has led our exporters to seek demand further and further away,” Lidia Sequeira, president of the port authority, said at her office across the harbor where green cranes hoist containers.

Companies are expanding as labor expenses decline. The cost of employing Portuguese and Spanish workers fell 6 percent between 2009 and 2012, according to a study by Berenberg Bank and the Lisbon Council, a Brussels-based research group.

Peugeot, Leica

Peugeot Citroen, Europe’s second-biggest carmaker, is increasing production at its Portuguese plant by 36 percent in 2013, hiring 300 workers, the Economy Ministry said on Feb. 22.

Leica Camera AG opened a 22.5 million-euro ($29.3 million) factory on March 21 in Famalicao, northern Portugal, replacing the German company’s old plant from the 1970s. It employs 710 people and all of its output is exported to Germany.

“Exports are almost the most important indicator because they determine the sustainability of the Portuguese economy,” said Diogo Teixeira, chief executive officer of Optimize Investment Partners, a Lisbon-based firm managing 62 million euros. “Export performance was one of the factors that led us to believe in the sustainability of Portugal’s debt.”

Portugal’s exports of goods and services represented 39 percent of gross domestic product in 2012, up from 28 percent in 2009, Eurostat data show. While that compares with 52 percent for Germany, it’s more than neighboring Spain. About 71 percent of it went to EU countries, even with the new trade routes.

Reversing Trends

VAA-Vista Alegre Atlantis SGPS SA, a maker of glass and fine porcelain, will open a new factory in 2014 and add 144 jobs after signing a contract on April 3 to supply Ikea. Vista Alegre expects exports to eventually account for as much as 90 percent of output, said Paulo Varela, the company’s chairman.

“The company was in an extremely difficult situation,” Varela said, with only one third of production exported. “Three years later, the situation was completely inverted.”

Over the past two years, Portugal has cut the cost of firing workers, lowered unemployment benefits and suspended four national holidays in an attempt to make its labor market more flexible and the economy more competitive.

Companies such as Volkswagen, Europe’s biggest carmaker, struck deals with workers, including a reduction in entry-level salaries. All but 1 percent of the cars and vans made by the 3,600 workers are for export, mainly to the EU. The plant accounts for 1.3 percent of the country’s economy.

“We have always worried not to inflate unit labor costs as it’s one of the competitive factors that we have to take care of,” Antonio Melo Pires, executive director of the Volkswagen Autoeuropa factory, said at the plant in Palmela, southeast of Lisbon. “In western Europe, we are the cheapest labor unit plant. When compared with eastern Europe, we are now more or less the same as Poland.”

Long Voyage

Portugal’s voyage to recovery has a long way to go, not least because the country’s economy has been the euro region’s laggard for at least a decade.

Its last emergency funding, from the International Monetary Fund in 1983, was coupled with a currency devaluation, not an option this time round for a euro member. While labor costs are falling, it’s by less than in Greece and Ireland.

“It is clearly a factor that puts on some pressure and makes it more difficult in terms of international competitiveness,” said Varela at Vista Alegre.

Unlike fellow recipients of euro-era bailouts Greece and Ireland, Portugal never experienced the rapid growth before the collapse. Spending on highways, resorts and ports piled on debt without the growth. Gross domestic product rose an average of less than 1 percent a year in the decade prior to the European debt crisis erupting in Athens in late 2009.

No Boom

Portugal had a “bust without a boom,” Finance Minister Vitor Gaspar said on April 11 in Dublin where he met his European counterparts to extend the nation’s bailout loans. “Portugal’s imbalances were exposed.”

To secure the extra time, Portugal still needs to propose alternative measures to meet this year’s deficit target after a Constitutional Court ruling blocked 1.3 billion euros of spending cuts this month.

At about 15,600 euros last year, GDP per capita is less than half of Ireland’s and about 9.3 percent below that of Greece, making it western Europe’s poorest country, according to EU data. The government forecasts the economy will shrink another 2.3 percent this year, twice its earlier prediction.

“People are feeling more the recession than growth and exports,” said Oliveira at the Atlantico eatery in Sines, chatting with one of the waiters. “The container terminal has been expanding. It provided some direct and indirect jobs. But maybe it wasn’t noticed as much as expected.”

Raising Taxes

The government forecasts the jobless rate will climb to 18.2 percent this year. That compares with 26 percent in neighboring Spain, the highest in the euro region along with Greece, and 6.9 percent in Germany.

Portuguese Prime Minister Pedro Passos Coelho is implementing 5.3 billion euros of deficit-cutting measures this year. Government debt increased to 124 percent of GDP in 2012 from less than 50 percent when the country joined the euro in 1999, said Gaspar, the finance minister.

Based on 10-year bond yields at 5.8 percent, Portugal’s extra borrowing costs compared with benchmark German bunds are twice those of Ireland, which the country is trying to emulate by exiting its bailout program over the next year.

“This adjustment is not working, it’s nonsense,” said Pedro Lains, an economics professor at Lisbon University’s Social Sciences Institute. “The transformation is slow and was being done before the crisis. Companies that are only exporters or that export more than 50 percent are rare.”

More Ships

Tania Vieira, 30, who works at Atlantico, has witnessed the export activity at the container terminal, which opened in May 2004. Now she’s waiting for the benefits to reach people’s pockets in the country of 10.5 million.

“Today you can see a lot more movement of ships than 10 years ago,” she said as she tended tables and served drinks. Hanging on the wall over the bar is a scarf of the local Vasco da Gama soccer club. “The port expanded.”

Vieira finished high school in Sines before leaving for Alverca near Lisbon for six years, working in a supermarket and running a store. She returned seven years ago before Portugal was engulfed by the debt crisis.

Up on the cliff, da Gama’s statue looks out at fishing boats huddling in the harbor and the cranes towering over the container terminal. A tugboat slowly chugs into port and in the distance the Melina container ship arrives from Valencia in eastern Spain before heading on to Boston.

History Lesson

Da Gama was born in Sines around 1469. After his first voyage to India, the Portuguese in 1511 conquered Malacca, which today is in Malaysia and about 200 kilometers northwest along the coast from Singapore.

Five centuries later, the Sines container terminal is operated under a concession by PSA International Pte, owned by Singapore’s investment company Temasek Holdings Pte.

About a 90-minute drive from Sines, Fibras Sintéticas, known as Fisipe, exports about 99 percent of its production, including in containers shipped through the port to markets such as South Africa. And it’s not just lectures in fiscal discipline that are coming from Germany. Wiesbaden-based SGL Carbon SE completed its acquisition of Fisipe last year and is upgrading production lines to the tune of 25 million euros.

“If you look at history, one can say that Portugal was actually the first globalized nation in the world,” said Stefan Seibel, Fisipe’s managing director. “The inventors of globalization were the Portuguese.”

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