// SMI 12 | Nearshoring – Reshaping Supply Chains
Since 2019, Oliver Idem has been an expert for the business locations Spain and Portugal at the Association for Foreign Trade and Location Marketing (GTAI). Both countries had to struggle with the consequences of the Coronavirus pandemic, but things are now looking up again. In this interview, he explains how companies can benefit from this.
Oliver Idem
Expert for the business locations Spain and Portugal
Association for Foreign Trade and Location Marketing (GTAI)
Mr. Idem, at a time when risk in global supply chains continues to rise, companies are increasingly looking to Europe. What can Portugal offer them?
Portugal is basically a safe and very stable country. Such factors were quite unspectacular a few years ago, but this is now a big plus. During the pandemic, a bicycle exporter had a real issue when his bikes got stuck in a port in China. He can always get them to Germany from Portugal, by truck if need be. I think that‘s a good example of why Portugal is very attractive for many companies right now.
How is Portugal’s economy positioned?
The country‘s productivity development has been twice as high as the EU average since 2015. However, companies do not focus on quantity, but on quality. If you are looking for cheap mass production, you will not be in the right place in Portugal. The country has a good sustainability strategy and receives a lot of funding from the European Union for this purpose. Portugal is also an important country for startups, boasting over 2,000, many of which are also active in the field of sustainability.
For which industries is Portugal of interest?
First of all, in addition to many micro and small companies, there are also many medium-sized and very modern companies in the country, comparable to Germany or France. Relevant sectors are, for example, the metal and plastics industry as well as mold making. There are also many textile manufacturers, among others for leather shoes and clothing. The companies behind them are often of a size where they are still very agile and can react quickly to requests.
Portugal was one of the countries that suffered greatly from the economic consequences of the pandemic. Is that still being felt?
The country has recovered well in the meantime. It is back to pre-crisis levels. The labor market is also proving robust. But Portugal is one of the EU countries with the highest levels of debt, along with Greece, Italy and Spain. This is because limited government financial strength means, for example, that domestic support programs and subsidies are sometimes not consistently available, and companies should certainly keep that in mind.
In the medium term, however, I am expecting moderate growth. Hydrogen will play a major role, and Portugal also started early in restructuring its economy sustainably, which will pay off in the long term. In January, for example, the country sourced 84 percent of its electricity needs from renewable sources.
What is the impact of debt?
Portugal first gives the impression of being a very reliable debtor. Moreover, the country wants to reduce its debt. However, due to the high level of debt, banks are quite cautious when granting loans in Portugal. Those who want to do business with Portuguese companies should perhaps offer attractive financing solutions themselves; this can help to get into business.
How does this compare with Spain?
In principle, Spain and Portugal are well suited for nearshoring because they can score points with their reliability. Both countries also have a lot in common and work together in some areas, such as hydrogen. Coronavirus caused Spain‘s economic output to slump even more than Portugal‘s – by eleven percent. However, the country recently had similar growth rates. Even for the next few years, experts are predicting 1.4 to 2 percent – for many other EU countries, the forecasts are worse. However, the Spanish economy is not quite back to pre-crisis levels yet.
Spain is known for its role in the automotive industry. For which industries can the country still be relevant?
It‘s true that Spain not only has its own automotive suppliers, but many German automotive suppliers now also have a branch here. There is even a joint platform where Spanish automotive suppliers present themselves. So there is still a lot of potential here. The country also has a large food and beverage industry, for which the business development agency ICEX has set up its own website. The broad-based chemical industry is also one of the most important export sectors. Here, the major challenge at present is to tackle the decarbonization of production. This also applies to manufacturers of paper, steel and cement. These can become interesting partners for machine builders.
Spain is receiving some EU funding to rebuild its economy.
Correct, for this the country is relying on transformation and renewable energies and hydrogen. Large photovoltaic parks and offshore wind farms also play a major role. Many more projects are in the approval process in these areas. However, there is also a catch. While many measures have already been approved, companies have traded these approvals among themselves. This has created a certain backlog, which is why many projects are at a standstill and it is unclear exactly when they will be implemented. But if the country manages to get rid of that, it can take a big leap forward.
Morocco and Portugal are often cited as pioneers in nearshoring. Is Spain on a similar path?
The Spanish and German economies are closely linked and there are also long-standing supply relationships. However, less information is available on this than in Portugal. For European companies, a look at Spain can be worthwhile, because the companies here are considered reliable partners. In the automotive sector, Morocco is both a partner and a competitor for Spain. Antolin, Gestamp and Teknia, for example, manufacture automotive parts in Morocco. My impression is that Spain is the more established production location, but Morocco is working energetically to catch up.
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