How risk managers “adapted fast” to the economic downturn in Portugal

The economic news from Portugal has made grim reading in recent years. But we could now be seeing signs that the country is starting to turn the corner – and risk managers are playing a key role in this recovery.

The second quarter European GDP growth figures for Portugal came in at +0.4%.

Not bad for Europe in 2015, especially when you consider that the country is still battling to recover from 2008 crash while simultaneously complying with tough austerity drive – and considerably better than France, which registered 0%.

Unemployment is also down, there is an ongoing improvement in export ratios. Portugal also officially exited its European bailout last year.

But nothing is guaranteed in an uncertain world. “There are some positive signs but the challenges are still enormous,” says Jose Manuel Fonseca, president of the Portuguese risk management association, the Associação Portuguesa de Gestão de Riscos e Seguros (APOGERIS).

“Especially when it comes to improving productivity and competitiveness and continuing the process of reducing debt.

“The drivers for growth should be foreign trade. But the concern for us is that these drivers are not that robust when you take into consideration the latest financial turmoil in markets across the world.”

Portugal is especially vulnerable to instability abroad as many firms have responded to the domestic recession by looking for growth overseas. For example, the Portuguese footwear industry, which exports 95% of its output, saw foreign sales up 40% 2010-2014.

However, even getting this far has required great effort. “Risk Managers had to adapt fast,” says Fonseca. “[They had to] be more rigorous in their selection of solutions to the risks their employers faced and adjust to the changes that they were suffering.”

Many of the country’s problems came down to the fact that Portuguese companies were strongly leveraged pre-2008 and finding a way to deal with this unsustainable debt required risk managers to take a positive attitude to change.

“With the financial crisis we saw a lot of restructuring and changes in control, from equity funds and foreign investors,” says Fonseca. “This created a new, solid financial base to build on. Portugal is also benefiting from a cheap euro and low oil prices.

“However, growth in Europe and in Spain will be critical to sustain our exports success.

“We also have very high and multiple and complex taxes, both direct and indirect, which affect both employees and our attractiveness to investors.”

But having proved its worth through the difficult years, Fonseca feels positive about the future of risk management in his country – with some caveats.

“Although I feel that it is now no longer regarded as a new thing or strange philosophy,” he says. “Still the degree that the companies have gone into risk management or how deep the practice of risk management is integrated into their corporate culture has not evolved as fast as it should.”

Just as with the broader economy, he says: “There are still some hurdles to overcome.”