PORTUGAL * 1. REGIONAL DISPARITIES AND PROBLEMS. Figure 1: Portugal. Portugal

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1 PORTUGAL * 1. REGIONAL DISPARITIES AND PROBLEMS Portugal is often characterised in terms of the contrast between the coastal strip between Lisbon and Oporto, where both population and economic development are concentrated, and the interior of the country, which suffers from a weak urban structure, low population density and out-migration and low levels of economic dynamism. However, the situation is more complex than this. The Lisboa e Vale do Tejo NUTS II region, which is now excluded from Objective 1, conceals considerable heterogeneity at the subregional level in terms of economic output, employment, sectoral concentration and population density. In addition, there are areas away from the coast, which are faring relatively well, in part due to the new infrastructure endowments of the last decade. At the same time, an economic development tension between the capital and the rest of the country remains. Lisbon is recognised as the principal driver of the economy, and is still the main target for foreign investment; there is therefore considerable concern at its loss of Objective 1 status and the implications of this both for its own competitiveness and for the Portuguese economy as a whole. Figure 1: Portugal Source: 1

2 Table 1: Socio-economic indicators in Portugal (NUTS II) Portugal Regions Population (000) 2001 GDP Per Capita, PPS 2001 Employment by sector (% of total) 2002 Unemployment Rate (%) EU15=100 EU25=100 Agric. Ind. Services Continente Norte Centro Lisboa Alentejo Algarve Açores Madeira Total Source: Eurostat (unemployment rates) and Third Report on Economic and Social Cohesion (European Commission, Brussels, 2004). 2. NATIONAL REGIONAL POLICY OBJECTIVES Although the Lisbon area is a transitional Objective 1 area, the entire country is currently eligible for Structural Fund support and, hence, for regional policy intervention. National regional policy is closely intertwined with the Structural Funds, which co-finance the main regional aid and industrial development schemes. Indeed, the two policies are virtually synonymous. The regional development plan (PDR) submitted to the Commission as the basis for the Community Support Framework takes a sustainable development perspective, based simultaneously on the promotion of economic prosperity, social equity and environmental balance. In particular, the PDR notes the need to find a positive equilibrium between reinforcing economic competitiveness especially through improving the skills of the population and the efficiency of firms and improving the quality of life, protecting the environment and promoting social integration. In addition, the PDR takes on board the horizontal priorities specified in the Structural Funds Regulation, notably environmental protection, equal opportunities and the information society. 3. INSTITUTIONAL ARRANGEMENTS Regional policy responsibility lies with the Ministry of Economy which, amongst other things, has assumed responsibility for all incentive policy in Portugal. The Ministry is directly responsible for regional aid policy, but its implementation is channelled through the IAPMEI (the Small and Medium-Sized Industrial Firms Institute). While policy is in general highly centralised, it is of note that there is now a regional element to the administration of the Structural Funds, particularly through the Regional Operational Programmes. 2

3 Table 2: Territorial Units in Portugal Unit Type Designation Number of Units NUTS I 3 Regions NUTS II 7 NUTS III NATIONAL REGIONAL POLICY INSTRUMENTS 4.1 Instruments Each of the PDR s four Priority Axes was broken down into an Operational Programme which, in turn, was developed into specific policy measures. Aids for business were part of the Operational Programme for the Economy (POE) which has public funding of 4.1 billion over the period. The specific aims of the POE were: (i) to improve the competitiveness of Portuguese firms and their participation in the global economy; and (ii) to integrate Portuguese firms into the new economy, notably by defining strategic activities and improving services to SMEs. Subsequently, the POE was revised as part of a national austerity package and became the PRIME (Incentive Programme to Modernise the Economy) in mid Amongst other measures, it provides support for business via two aid schemes: the Sistema de incentivos a pequenas iniciativas empresariais, SIPIE (incentive scheme for small entrepreneurial initiatives); and the Sistema de incentivos a modernização empresarial, SIME (incentive scheme for business modernisation). The SIPIE is a grant aimed at small firms and projects while the SIME, the main aid scheme under the PRIME, supports investment projects and measures which aim to enhance competitiveness. 4.2 Spatial Coverage of National Regional Policy For the purpose of regional aid policy, the Portuguese authorities have always operated an aid area map. This has been used mainly to adjust award values in favour of the problem regions; in addition, selected SME support has been restricted to the designated areas. For the period, a distinction is drawn between two broad categories of aid area: Zone I: the most prosperous region covering the cities of Lisbon, including the Setúbal peninsula, and Oporto, and, broadly speaking, the coastal area between the two regions. Zone II: the less developed part of Portugal comprising the interior of the country, as well as all of the Alentejo and the Algarve and the autonomous regions of Madeira and Açores. Maximum rates of award are higher in Zone II than in Zone I. However, as can be seen from the map, there is considerable rate discrimination within these zones. This contrasts markedly with the pre-2000 position when a uniform award ceiling (60 percent nge) applied throughout the country. 3

4 Figure 2: Portuguese regional aid map Source: DG Competition website 5. EU PROGRAMMES Under the programming period, Portugal has been allocated almost EUR 26 billion from European Funds. The country benefits from Structural Funds through seven regional programmes and twelve sectoral programmes, all under Objective 1 (although one regional programme is at the phasing out stage). General Objective 1 priorities for Portugal are: people development and employment promotion; improvement of the productive profile; enhancement of the territory and country s socio-economic position; sustainable development and national cohesion. Each Portuguese region is the subject of a regional development programme, tailored on its specific needs. Eligible regions for Objective 1 are North, Centre, Alentejo, Algarve, Azores and Madeira. Transitional support has been awarded to Lisbon and Vale do Tejo. Multi-regional programmes tackle issues that are common to various regions: education; employment, training and social development; science, technology and innovation; information society; health; culture; agriculture and rural development; fisheries; accessibility and transport; environment and technical assistance. Figure 3 provides a geographical distribution of Structural Funds for the period The allocation of funds among various objectives is presented in Table 3. Table 3: European Funds to Portugal, (millions of EUR) Obj. 1 INTERREG URBAN EQUAL LEADER+ Cohesion Fund Total 21, ,388 25,994 1 Source: DG Regio, The European Structural Funds ( ): Portugal. 1 Inclusive of 855 million allocated in March 2004 by the European Commission in the framework of the performance reserve for most successful programmes. 4

5 Figure 3: Structural Funds to Portugal, Objective 1 Objective 1 Phasing-out (till 31/12/2005) Phasing-out (till 31/12/2006) Source: The DGDR (General-Directorate for Regional Development) is the ministry responsible for horizontal and vertical allocation of competencies and for the co-ordination of Structural Fund operations. * This paper has been prepared by the (EPRC) for the Second International Conference being held in Latvia on April