Portugal Needs to Upgrade Tourism
Updated: Jul 12
"Tourism 2.0 must be based on products with greater added value (and greater productivity). More sophisticated products than sun and beach: 'experiences'. For example, a weekend in Alentejo that includes tastings of local cheeses and regional wines. " (Photo by Luis Barra)
This is an opinion editorial piece of Luis Cabral (Expresso, May 26) , who is professor of Economics at New York University and visiting professor at AESE Business School in Lisbon. Previously, he has taught at the London School of Economics, the University of California at Berkeley and Yale University.
It is no news to anyone that the tourism sector plays a fundamental role in the Portuguese economy. As we consider activities directly or indirectly linked to the sector, we arrive at something between 10% and 20% of GDP (Gross National Product).
Tourism plays a very vital role.
The good news is that we have a country with great natural resources. There may be no oil in Beato (referencing the comedic play by the late Raul Solnado, Ha Petroleo no Beato (1986), in which a taxi driver’s family pulls up a lettuce in the garden only to discover oil, profoundly changing everyone’s day-to-day life), but there is plenty of sunshine across the country.
The bad news is that relying too heavily on one sector is risky, especially when it comes to a sector with high risks (think, for example, of the recent pandemic).
There is even more bad news. The tourism sector, in its current form, is a sector with relatively low productivity. In fact, it is enough to see that many of the jobs created by the sector are jobs that attract immigrants, not Portuguese (because of their lack of interest, not because of lack of qualifications).
The tourism sector typifies a “paradox” of the Portuguese economy in the 21st century: despite one of the greatest positive shocks to human capital (the “revolution” of higher education in Portugal), the average productivity of the Portuguese remains low, essentially because jobs are not created at the level of qualifications of the new generation.
What to do? Abandon tourism? No. What we have to do is invest in moving towards Tourism 2.0, like footwear at the beginning of the century.
Eight years ago, I wrote an article here about the “revolution” in Portuguese footwear. When, in 2001, China joined the World Trade Organization, the sector suffered a tremendous competitive shock. Many predicted that it would be the end of Portuguese footwear, impossible as it is to compete with the low wages of the Chinese.
However, companies responded decisively and effectively. The focus shifted from low cost to high quality. New machines and better-quality leather were bought – and more attention was paid to fashion trends.
The results were excellent. In 2013, the average export price of a pair of Portuguese shoes was 31 euros. Only Italy then reached a higher value. In the same year, the United States received less then 15 euros per pair of shoes; to China, less than 5 euros.
What does this have to do with tourism? Turismo 1.0 has many of the characteristics of footwear at the beginning of the century. Portugal has good beaches, but there are other countries with beaches that are just as good or better. Beach tourism is not exactly a commodity, but competition is very strong.
Just as the footwear sector has taken a leap in quality, Tourism 2.0 must also be based on products with greater added value (and greater productivity). More sophisticated products than sun and beach: “experiences”. For example, a weekend in Alentejo that includes tastings of local cheeses and regional wines.
This example might seem a bit silly. And if you ask me for more examples, I don’t know if I can find them. If I had them, I would be an entrepreneur, not an academic. What matters is that there are thousands and thousands of Portuguese out there with great ideas.
The mentality of many governing leaders is that this upgrade must result from a massive investment by the State. I don’t doubt the good intentions, but what we need is not a good idea from the competent ministry; what we need are thousands of ideas from thousands of entrepreneurs. On average, there may not be very good ideas, but what matters is that the best of the thousands of ideas will be much better than any business model planned by the minister.
This is not to say that the State does not have a role to play. The conditions must be created so that entrepreneurs, small and large, can move forward with their plans, some of which will be successful.
In this sense, the recent suspension of Local Accommodation (Alojamento Local) licenses until 2030, however well-intentioned it may be, is a disaster with a capital D. (I am convinced that one of the first measures of the next Government will be to revoke this error and resume the sector’s expansion process.) The simplification of the licensing process for new housing is clearly a good idea. Hopefully, it is more than an idea. Years ago, it was announced with great fanfare that Portugal had become one of the countries where you could set up a company faster, but we quickly discovered that having a company without having licenses is like having no company at all.
To summarize, the solution to the “paradox” of the Portuguese economy involves upgrading Tourism 1.0 to Tourism 2.0. The Government needs to facilitate this transition. Or at least not get in the way.