The world has been following the trials and tribulations of that small country Portugal, based on the Iberian peninsula right next to Spain.Portugal some say, has in conjunction with other Southern European countries put the European currency, the euro, in the spotlight for all the wrong reasons.
Well that is true, no doubt about that, on the other hand it is worth remembering that the reasons for this are long standing and actually not at all complex. Lets start at the beginning, every country worldwide now has to pay its way, no matter whether its Africa, Asia, Europe, USA, South America…
The difference between those who can and those who cannot is complicated by individual countries abilities to develop a stable business environment, stable currency, generate sustainable business growth and balance their internal and external payments.
In Portugal’s case there are currently massive endemic issues causing a lack of inward investment and therefore strong trade and foreign investment cash flows. Let me start by saying that Portugal is place of old world charm, patient, wonderful people and the best weather in Europe for holiday makers and tourists. The people make the country what it is, no doubt, but they hampered by certain political and economic blockages.
So what are these issues: – First and foremost is the basic ability to start a business and deduct bonafide business costs as a small sole trader. In Portugal a new start up can only deduct up to 30 % of its costs and these exclude costs like telephones, fuel, motor vehicle costs, stationery all those areas that are genuine start up costs. As a result somebody in another country who can deduct 100% of its start up costs is at an advantage already.
This means that to make money a sole trader must charge 3 x times his costs to make a small profit.This foolish and short sighted approach has led to a black market economy that over the last 4 years is estimated to be worth 112 billion euros. Business will not declare income, taxes will go unpaid and the country faces a massive task to change what is in effect a major investment error.
Secondly, as any business knows when starting or running an existing business, costs have to be controlled, revenue and the profitability of it, are prime factors. In Portugal anybody with a registered limited company is forced by law to ensure that they contract an accountant who needs to be paid every month.
Whereas in most competitive countries accountants are employed at year end or as and when they are needed Portugal forces all limited companies to pay high fees every month regardless of whether you need an accountant or not. This is bureaucratic and simply a licence to print money for accountants. As a result the black economy flourishes.
If you are a small young business and you make no profit in your first year – you still have to pay business tax, why? Because the government have deemed fit that regardless of whether you make money or not you must still pay tax!So they levy a tax..
Small businesses regardless of whether they make money or lose money, have to pay Social Security taxes that in any normal business elsewhere would cripple or bankrupt a company relatively quickly.These a just a few examples of the ludicrous and fundamental reasons why businesses will not invest in Portugal.
Most of the important, strategic business, legal and regulatory laws have not been modernise or updated for the last 10 years, in addition as there are strong and powerful Portuguese families who own land and have power many of them don’t want to see any changes as it suits them to maintain the status quo as it is.
Living as I do in Europe, this is prevalent across Portugal. Recently I was consulted about why a particular town in Portugal was struggling to attract investment. I asked why the vast number of delapidated and ruined buildings were not been sold, modernised or why there was no sustained programme to attract new employers into the town? I was told that a small, wealthy group did not want to see new, modern buildings or any type or industrial activity in this town!!As this group had powerful and influencial connections within the local council nothing subsequently would happen.
So.. in conclusion, Portugal has a great potential, wonderful opportunities but lacks, vision, drive and the desire to create a better future for its people. In fact that is the reason so many people leave Portugal and work abroad as there are more chances to grow and develop professionally and obtain much needed experience.
Right now because of its legacy of sloppy accounting and poor management practices Portugal will now be forced to change as it has the IMF gun pointed at its head!Its taken 110 billion euros, that comes at a cost, a high cost, which could all but bankrupt the country and force it into a protracted and desperate effort to repay this enormous debt.
For anybody running a small, medium or large enterprise here are some statistics to blow your mind.Portugal received 70 billion euros in revenue in 2010, it spends 83 billion euros managing it, then goes on to borrow another 136 billion euros!! Wow – you have to ask yourself? What the heck is going on? I ask again what does a government of the poorest country in Europe do with an extra 136 billion euros?
Over to you!
Cheers
John Norton – John runs a group called Leaping Ahead, helping businesses build businesses online and offline. To date Leaping Ahead has helped businesses generate over 150 million euros in new business.
