Saturday, January 14, 2012

Innovation and Portuguese film production [barrier]

The Portuguese film industry is an example of the difference between creativity and innovation. Portuguese films fail to attract audiences even in their home market, let alone internationally. With dwindling public funds to finance productions and fierce competition, prospects are not bright to say the least.

A total of 23 films were produced in Portugal in 2011. Ten of those had fewer than 500 viewers. The others typically achieved less than 10,000 and only a couple managed to attract audiences around 20,000. This is a dismal track record by any standard. Why were these pictures unsuccessful?

There are four stages in the innovation process: ideas, insights, invention and innovation. Everyone has ideas. If you share your idea, it may become an insight. If your insight is turned into a product (or service) it becomes an invention. Finally, if that invention is successful in the market, this constitutes innovation.

Films (or documentaries) are often based on new ideas and insights and original scripts - a product of creativity. In my opinion, the right measure for judging whether a film is innovative (rather than just creative) is public acceptance. If a film is creative and manages to attract large audiences, this constitutes an innovation. Having good reviews is not enough.

Note that the reverse is not necessarily true: public acceptance does not always stem from innovation. Most Hollywood blockbusters are not innovative at all. Instead, they are based on small, incremental variations on a well-known genre. Looking at 2011 global box office results, the top 7 films are sequels.

Back to Portuguese film production, I am willing to accept that at least part of the 23 films produced in 2011 involved some creativity, new insights or original scripts. What prevented these films from reaching larger audiences? I confess that have not seen any of them, but I am willing to take a guess.

The first potential barrier is that Portuguese cinema production is State-financed, to a large extent. Both State and local authorities spend a considerable amount of cash to finance films and promote them. Financing films using public funds has various drawbacks. Among others, a committee has to decide which films are worthy of support. Decision by committee is a known innovation killer.

Another barrier is viewer education. The Portuguese population has a relatively low level of education compared to most European countries and in order to draw audiences, films have to be simple - perhaps too simple. Lack of education acts as a constraint on innovation.

Foreign markets could provide additional audiences but in fact, Portuguese-spoken films do not appear to be easily exportable. Brazilian audiences have to make an effort to understand the language as it is spoken in Portugal.

Another barrier is the strong competition from Hollywood studios. As the dominant force in the industry, Hollywood shapes audience preferences and has developed an expertise around simple films, based on familiar genres.

The difficult economic conditions and large State deficit will create additional difficulties. The Government's budget for 2012 specifically identifies cinema as one of the areas where the State will review its policy. This will almost certainly involve spending cuts.

Is there any way to overcome these barriers?

The obvious choice would be to produce films for mass consumption. However, cinema production and direction is a complex eco-system. It is questionable whether directors working in Portugal are interested in reaching large audiences. In fact, the most successful film of 2011 (in terms of audiences) was João Canijo's "Sangue do meu sangue", describing the harsh realities of a family living in a slum in the outskirts of Lisbon. Tough subjects seem to be the norm.

With limited audience acceptance, reduced State budgets and strong competition, the future does not look too good for Portuguese cinema production. Yet it is essential that the industry continues to exist as it encourages pluralism, creativity and diversity.

Saturday, December 17, 2011

Qui bono?

An important chart on the so-called fiscal irresponsibility of countries in Southern Europe. From Paul Krugman's blog. 


Tuesday, December 13, 2011

Why are acquisition multiples a taboo subject in Portugal? (2)

In a previous post on the subject of transaction multiples, it was argued that lack of information and analysis in the Portuguese press acts as a barrier to innovation. If the media does not report adequately on the value of businesses and no one really understands what a company is worth, is there any incentive to develop a new product, break into a new market or even start your own business?

The latest instalment in this series is the EDP privatisation. We are now used to silly headlines however "Christmas sale: the German, Brazilian and Chinese all want EDP as a present" is hard to beat (source: Jornal I).

Here is a basic question on the privatisation: Are taxpayers getting a fair deal?

There are various ways to determine the value of a company. The media are obsessed about market values however, other methods such as discounted cash flow valuation are more reliable.

A simple way to answer the question without going into the detail of cash flow estimation is to use relative valuation. If you calculate EDP's value in relative terms and compare it to similar quoted companies, you will gain a better understanding about the offers on the table.  

The Enterprise Value (EV) is the sum of a company's market value and its net debt. EV is a measure of value which can be compared to EBITDA (an approximation of the annual cash flow) and this provides a valuation multiple. So the question is: what is EDP's EV/EBITDA multiple?

Bloomberg estimates that EDP's Enterprise Value at current market prices is EUR 28.8 billion and its EV/EBITDA is equal to 7.9x. That should be a good enough approximation.

In the case of the privatisation, acquirers are not offering market prices for the stake being sold. Instead, a premium is being offered, relative to current market prices. The resulting EV/EBITDA taking into account reported offer values is around 8.3x.

How does that compare to EDP's competitors? These trade at around 6.5x - 7.0x EV/EBITDA so from this perspective, it looks like Portuguese taxpayers are in fact getting a reasonable deal. As a taxpayer, I feel that I am entitled to know whether the company is being sold at a fair price, which appears to be the case.

All the other aspects of the transaction, such as the corporate governance and in particular whether the current CEO will keep his job are analysed with a great amount of detail in the press, but would it not make sense to answer basic questions first?

Friday, September 30, 2011

Innovation in Portugal - 1957


From the proceeds of the II Congress of the Industry and Economists, which took place in 1957, we learn that "it is crucial that initiatives which are useful to the country's industrial development, are not constrained in any way, as this would refrain the dynamics of creative enthusiasm" (the translation is my own).

Lesson learned?

Monday, September 26, 2011

Hard work

Shellfish fisherman in the Algarve.
Posted by Picasa

Morals and the takeover code do not always mix

This post originally appeared on Bureau van Dijk's M&A Portal.

CMVM, the Portuguese equity market regulator, has recently opened a  public consultation period (which is now over) for proposed changes to the takeover code. At present, the code allows the use of so-called defensive measures during takeovers. In practice, if an acquirer launches a takeover offer for a company quoted on Euronext Lisbon without the prior approval or the company’s core shareholders, chances are that the offer will not be successful. Most quoted companies are controlled either by families or core shareholders, whose rights are protected by shareholder agreements and other locking mechanisms.

The proposal, in short, consists in removing voting rights limitations and defence mechanisms.

It is safe to say that, in larger European exchanges and in the US, shareholders' rights are respected. Take the UK as an example: if a foreign or UK investor, be it a corporate or an investment fund, decides to launch a credible takeover offer for a company listed on the London Stock Exchange, offers a suitable premium and convinces more than 75% of shareholders to accept the offer, it will achieve control over the target. It is as simple (and powerful) as that.

In Portugal, if an investor launches a public takeover without gaining prior approval from core shareholders, the target’s Board will likely block the offer before it even gets to a stage where other shareholders can vote on it. 
 
Also consider the following facts:
  • So far, no one has found a way to convince core shareholders to let go of their control rights over quoted companies.
  • It is widely accepted that most Portuguese quoted companies would be taken over by larger, foreign competitors, if such shareholders did not exist.
  • Most Portuguese consider that, if foreign competitors acquired the leading Portuguese quoted companies, this would be a disgrace. International investors (investment funds, pension funds) already own the majority of shares of those companies, which makes it hard to understand this belief. Yet most politicians appear to share this view.
  • A large number of investors buy equities purely for financial purposes. These investors will usually hold on to a stock for less than a year. Large volumes of equities are also traded as part of derivatives trades.
  • The State and the State-owned bank, Caixa Geral de Depósitos, are under increased pressure to sell non-core assets in order to reduce the public deficit.
  • A number of companies quoted on Euronext Lisbon are former State-owned companies that were privatised during the 90s.
I went through the regulator’s consultation document and what caught my attention was the emphasis on principles and moral values. At a certain stage, the regulator attempts to justify the reason why changes to the code are necessary. Reference is made to principles including "shareholder sovereign rights" and "the proportional rule" according to which "capital and voting rights should be proportional", as if those principles were part of some sort of universal declaration.
 
Why is it so hard to recognise the following?
  • The State, directly or indirectly, contributed to create a system in which most quoted companies are controlled by Portuguese core shareholders.
  • Some (but not all) of these shareholders depend on the State or State-owned banks for financing. In other cases, the acquisition of the shares was partly debt financed and shareholders will need to reduce their leverage in the short term.
The Status Quo is no longer sustainable and the takeover code simply needs to be amended in order to reflect the new reality. Why call on principles, moral values or use emotionally charged words to justify these changes? As with most policy decisions which result from the financial crisis, this one is pragmatic and owes little to principles. 
 
Still, the proposed changes are a step in the right direction. The regulator had to refer to some principles in order to justify this initiative, which is fine by me.

I can understand the reasons why a number of people would oppose these changes – as well as why others will back the reform. One side will defend that the budget needs to be balanced and that the country needs to attract foreign investors. Others will defend the need to preserve the independence of quoted companies and fend off attacks from larger international competitors. The positions of the protagonists will depend on their political allegiances and professional interests.

My view is that the benefits of change are far greater than the disadvantages. Advantages would include improved efficiency: while quoted companies will be more vulnerable to being taken over by larger competitors, this could result in improved management practices as management teams develop competitive advantages in order to retain their independence. Another benefit could be improved access to equity markets, which is crucial at this stage when companies need to deleverage.

Friday, July 29, 2011

So - how would you define affordable innovation?

Ask these guys...



(Sources: Youtube/Spark Africa)

Do you know of other examples of affordable innovation? Let me know...

Tuesday, July 12, 2011

Why are acquisition multiples a taboo subject in Portugal? [barrier]

Whenever a UK or US newspaper reports about an acquisition, one of the most usual subjects is a short analysis of the acquisition multiples. Why is this important? One of the main questions that arises when a company is acquired is whether the acquirer paid the right price.

One of the most bewildering facts about the way journalists report acquisitions in Portugal is that price and value multiples are almost never mentioned. I really cannot say for sure why this is the case - there could be several explanations.

One explanation could be that transactions in Portugal are comparatively small and there would be limited interest in the price. But then, why bother reporting at all? Perhaps journalists simply know that, if they were to ask questions about the value of the acquisition, they would not get a straight answer.

Another possibility is that journalists cannot be bothered to calculate an EV/EBITDA multiple. The maths are not challenging... The media sector is going through a difficult phase at present with cost cutting and editorial staff limitations, which may explain why there are rarely in-depth articles about acquisitions.

While multiple analysis has a number of limitations, it allows analysts to draw certain conclusions. The lack of transparency in M&A in Portugal is yet another barrier to entrepreneurship. No-one really understands what a company is or could be worth, so why bother starting a business?



Yet there are positive developments. TTR is a financial information company which focuses on providing proprietary information about global M&A transactions which involve Portuguese and Spanish companies.

Should TTR data make its way into mainstream media in Portugal, this could indirectly act as an incentive to entrepreneurship. However, newspapers and TV stations have given up on actually hiring editors and are happy to use and reuse existing news so this could prove unrealistic.

Do you think that mainstream media and particularly newspapers should focus on acquisition multiples? Or would you find it too technical?

Tuesday, July 5, 2011

More about Apple's acquisition of Nortel's patents

It emerged today that Google bid Brun's constant and Meissel-Mertens constant in the auction for Nortel's patents. These numbers are well known to mathematicians. When the auction got to 3 billion USD, Google bid Pi. The press speculates that the company was either supremely confident or bored.

Here is a thought: Google was not bored and probably knew that there were other corporates in the run. Google's only objectives were to avoid that patent trolls such as Intellectual Ventures ended up owning the portfolio, as well as securing a role in the next stage of the process. Google can talk with Apple if needed but would find it more difficult to talk with a belligerant patent acquisition fund.

Google never liked formal auction processes organised by banks, either in the context of acquisitions or securities offerings. Google's IPO avoided the usual bookbuilding process.

This is my theory - only the bidders and bankers involved in the process know what really happened.

Friday, July 1, 2011

Patent trolls and Apple's acquisition of Nortel's patent portfolio [hack]

There is much to be said about Apple's acquisition of Nortel's patent portfolio. The deal size is impressive, keeping in mind that these are intangible assets.

This deal is proof that a company that fails to bring the results of its R&D activity to market  will face difficulties. Nortel filed for bankruptcy while sitting on a huge and valuable portfolio of patents. Innovation is about bringing new products and services to market and not (only) about filing patents.

Seen from the outside, this looks like a defensive move from Apple. Defensive action knowing that patent trolls were participating in the auction. The term "patent troll" designates acquisition funds and companies that focus on acquiring patents and then suing other companies that use those patents without paying royalties.

Are patent trolls a barrier to innovation or an incentive? There's plenty of debate on this issue. It appears that Apple could not afford to see these patents fall into the "wrong hands". There were two patent trolls in the auction according to the press, among them Intellectual Ventures.

This deal also shows the importance of access to competitors' assets (in this case, intangible assets) developed by other companies. This is especially the case for technology companies. Innovation is not about a lone genius coming up with an idea but more like a collective effort, that involves various companies and experts working together to deliver a novel product or service.

The acquisition illustrates the central role that patents play in a technology company's development as well as their enduring value.

Do you think that this acquisition was caused mostly by financial factors i.e. that Apple is looking to make a financial gain from this portfolio? Or would you say that the this was mostly a defensive move? Let me know...

Celebrating the 1,000 visits mark in June

The following charts shows monthly visits to this blog for the last twelve months.
Source: Google Blogger Stats

A big thank you to my readers. Limited number of visits, but growing steadily. June was a good month as the blog recorded over 1,000 visits for this first time since launch in 2008.

Friday, June 17, 2011

The other reason why the Portuguese footwear industry is sexy [story]

An initiative has recently been launched to promote the Portuguese footwear industry and its international development. It appears to be financed in part by the EU and in part by the Portuguese Government.

Portuguese shoes, we are told, are "sexy" and the industry "combines tradition with cutting-edge technology and know-how with the best in design". It is a good start to promote the industry and to build an image.


However the turnaround in the Portuguese shoe industry was more than marketing. It is a case of product innovation and it is related to technology. From what I know, early in the '90s, the Portuguese footwear industry was very traditional. Producers used basic tooling and were producing footwear in large quantities. This started to pose a real problem as competition from Asian countries increased.

At around this time, some Portuguese capital goods producers started producing machinery which used water jet technology to make the components which form the basis of the shoes. Some of this technology came from other sectors, such as automotive. The technology could be transposed to the footwear industry with good results.

While certain footwear manufacturers used imported machinery, others started used Portuguese machinery which was more adapted to their needs and to the actual raw materials used in the country. Gradually, the industry started changing and became more innovative. The shoes looked better and could be produced in smaller batches, which meant extra flexibility.

Today, the industry remains competitive and exports to a number of markets. Some niche brands have emerged. Rather than competing in volume with Asian countries, some producers manage to sell their products in smaller quantities while still making good margins.

It is all about innovation and the use of technology to improve the productivity of a traditional industry.

From this perspective, it is slightly disappointing that the list of companies that participate in this initiative does not include a single capital goods company.

Friday, June 3, 2011

Why Portugal needs a more effective innovation policy [hack]

There have been numerous accusations during the electoral campaign, focusing on the current Government's mismanagement of the economy. Rather than pointing out what has gone wrong in the last years (and a lot has in fact gone wrong) it's interesting to consider what would be some options available to the next Government in order to promote innovation and foster economic growth.

As far as Government-owned companies are concerned, the first and more basic means of promoting innovation would be to halt systematic losses and the accumulation of debt on balance sheets. Any company which turns in a loss year after year will almost certainly not embrace innovation. This is particularly the case for loss-making Government-owned companies. Management is usually too busy managing interest payments and running day-to-day activities to even think about improvements.

Aside from avoiding systematic losses in Government-owned companies, what else could be done? PSD, which is leading in the polls, wants to attract private equity investment, provide fiscal advantages to innovative companies and improve the links between universities and companies.

PS's manifesto also mentions the link between universities and companies as one of the ways it will seek to promote innovation. But it does not appear to establish a link between finance and innovation - rather the link appears to be between science and innovation.

One of the main reasons for the lack of innovation in the Portuguese economy is the low level of education. This should be tackled however any improvements will not be felt for a long time. Which mechanisms could be used to achieve results more quickly?

One of the most promising areas of development is related to capital goods and it could result in fast improvements. Countries such as Germany have developped a proven expertise in capital goods. This has various economic benefits: not only do capital goods producers innovate by themselves, but the machines produced are then used by clients to boost productivity, creating yet another layer of innovation. The development of  the capital goods industry would certainly bring benefits to the whole economy. This view has been supported by the Innovation Agency (AdI).
Another option would be to reconsider business models to meet the needs of emerging markets - which is a different subject, to be developped in another post.

Monday, May 23, 2011

Business Model Generation: book review

Business Model Generation by Alexander Osterwalder and Yves Pigneur presents a structure for the development of business models and guides the reader through the main steps of building a business plan. The book also provides examples of innovative business models, for companies such as Amazon.com.

Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Wiley Desktop Editions)I recently used this book as one of the sources for a business model innovation class in an MBA. It worked quite well. The aspect of the book which attracted most interest from MBA participants was the discussion about various types of revenue streams i.e. the various ways in which businesses can generate sales and revenues.

Traditionally, businesses derive revenues from the sale of products or services. However, the reality is that companies nowadays make money in a number of other ways, from licensing to advertising fees.

The part about licensing resulted in substantial discussion. Licensing consists of selling some form of intellectual property in return for a fee. It is of particular importance for media companies. One participant who works in the travel and hotel industry (in addition to studying for an MBA) pointed out that hotels, for instance, are finding it increasingly difficult to cope with the demands of music publishing companies and associations that are constantly trying to charge hotels for broadcasting ambient music.

The authors propose to structure a business plan in 9 parts, which they call the Business Model Canvas. The feedback from MBA students was that the Canvas lacks a specific part about strategy. This could be due to the fact that strategy is in fact analysed according to its various components - value proposition, supply chain and so on (the jargon is explained in the book). Other business plan elements, such as "mission and values" do not appear to have a role either.

The book was written in an innovative way: it is a co-creation effort, involving more than 400 contributors. The Internet has changed the way books are written - writing is no longer a solitary task. I wonder whether the 400 contributors are paid any fees - but that is a totally different subject...

The book appears to form the basis of a consulting business: there's an iPad app and the authors organise a number of events. This is often the case for authors who write books on business modelling. In fact Richard Stutely who wrote The Definitive Business Plan has a similar setup on his own website.

Overall, I would recommend the book and I am not alone in doing so. Anders Sundelin, who writes the Business Model Database blog, is also positive.

Monday, April 4, 2011

Why Portugal needs an effective innovation policy [hack]

Any Government would be in favour of improving a country's productivity. Improving productivity is the key to economic growth and development. But productivity itself a result, not something that you can act on. Sadly, Portugal's new Government will not be able to push a button and improve productivity.
The country may blame its politicians, the IMF or the EU for the current crisis but the real cause seems to lie elsewhere. Innovation, technology and entrepreneurship are the real factors behind productivity improvements.

Innovation is not a theoretical concept. It's about responding to novel customer needs, using new technology to improve a product line - it's also common practice in many companies globally. The progressive decadence of some (or most) companies in Europe is related to their lack of innovation. Portugal is part of a trend, not an outlier.Technology-based businesses are rare in Portugal. Most companies are SMEs which provide low added value services or commodity products.

From my experience, I believe (although I have no quantitative data to back it up) that Portuguese companies are good at controlling costs. Cost cutting is a good principle in itself but will only get you that far when you are trying to enter into new markets or facing new customer needs. A company that thrives only be cutting costs will face a difficulty sooner or later when its markets change or when emerging economies start producing the same products at an even lower cost.

There are of course alternatives and solutions to foster innovation and increase productivity.

One of the first practical reforms which the new Government could undertake would be to restructure InovCapital, the state-owned venture capital fund. InovCapital has invested over 130 million Euros in the past years. The fund takes minority positions and has over 150 companies in its portfolio - there could be more as the exact number is not known.

One of the first odd facts about InovCapital is its investment policy in terms of sectors. A number of its investments are in industries such as textiles and the production of footwear. These are in general low added value industries which are under pressure from emerging markets competitors. Innovation takes many forms and there are innovative companies in mature industries. However, should textiles and footwear constitute investment priorities?

Seen from the outside, InovCapital's structure hardly seems appropriate to its mission. It has about a dozen "analysts" and a five-man Board. That's more than 15 companies per analyst. In fact, none of the analysts seem to be involved in the management of portfolio companies. Can anyone even understand and control 15 businesses without any support? I would say that InovCapital's contribution to the development of its portfolio companies is probably limited.

So we have a Government-sponsored fund making equity investments into a large number of companies and then making limited contributions to their development... That sounds like subsidies. It would appear that InovCapital "invests" about 1 million Euros per company. This is a small amount in terms of supporting any company in its development.

One of the fund's priorities should be to improve its investment policy: it should be more focused in terms of sectors, which would develop its own internal competencies and sector knowledge.

InovCapital should also consider making fewer bets of a larger size. This would improve the chances of the portfolio companies and would enable the fund to bring some value to the table and participate in portfolio company development.

InovCapital does not release any substantial information to the press about its investments. This opacity extends to its financial statements and the returns from its investments. Some of InovCapital's projects are in fact innovative, for instance its investment into Principal Power and Vestas' offshore test wind turbine off the coast of Portugal. However, no-one knows about the investments as the details are rarely disclosed.
In fact, one can question whether a Government-sponsored venture capital fund should exist at all.

Is it naive to think that companies invest in breakthrough products? It would seem that, in the majority of cases, companies spend R&D money in order to enhance their product line. Most breakthrough products are developed by stand-alone entrepreneurs, as part of University research programmes or using funding from non-profit organisations. Clayton Christensen has the full explanation in his book "The Innovator's Dilemma".

From this perspective, Government should be funding Universities and non-profit organisations in order to foster innovation. This could be more productive than throwing disguised subsidies at companies that operate in traditional sectors with a history of low productivity.

Tuesday, March 29, 2011

Avigdor Arikha


Avigdor Arikha
Inside And Outside, 1996

I really like paintings in paintings... I guess it's the recursive part that attracts me. 

Thursday, March 3, 2011

When the yield curve indicates that a bailout is imminent [barrier]

The yield curve is the relation between the interest rate (or cost of borrowing) and the time to maturity of the debt for a given borrower.

The following chart shows yield curves for the sovereign debt of three countries: Portugal, Spain and the UK (all in %):


What the chart immediately shows is that Portugal is paying outrageous yields on its debt - something we all we knew already. Now let's look at the shape of the curve. The yield curve is supposed to be upward sloping. In other words, from the borrowers' perspective, if you borrow money for a longer period you will offer your lender a higher return (or higher interest). In fact, this is the case for Spain and the UK.

Portugal's yield curve is now hump-shaped. A yield curve showing this shape is also called "inverted". This means that yields on 5-year debt are now higher than, for instance, yields on 6-year debt or yields on 30-year debt. This in turn means that investors find it riskier to lend to the Portuguese Government for 5 years than for 30 years.

This is counter-intuitive and only happens in situations when investors expect a period of recession. Or in this case, a bailout (or both). As stated in the FT today (James Mackintosh explains it all in a nice video) one of the factors preventing a bailout in Portugal is pride. The yield curve for Portuguese sovereign debt is indicating that a bailout is imminent (and if that is the case, it is likely that the current Government will be replaced).

Note that Spain's yield curve does not indicate that a bailout is imminent in Spain.

I have to confess that I am amazed at this Government's resilience but there is of course no causality link between an inverted yield curve and a change of Government. In my mind the current Government is in the way of change at the moment - from that perspective it should be removed.

Sunday, February 6, 2011

A tough measure for tough times [barrier]

First of all, I have decided to write this post in English as a number of my readers, surprinsingly, are located outside Portugal. I will start writing in English and we will see how it goes...

The issue here is the intention stated by Pedro Passos Coelho to reduce the number of Ministries (a Minister in Portugal is the equivalent of a Secretary of State in the UK).

Pedro Lains wrote a post on the subject in which he claims (to sum up) that reducing the number of Ministries is not the answer to the problem.

Reducing the number of Ministries is not a new idea. In fact, Jornal de Negócios asked its readers back in 2010 to list a number of initiatives to improve the public sector and Government and this reduction was one of the most popular measures suggested by the poll.


As you can imagine, I was never involved in merging Ministries and therefore cannot base my analysis on experience, however the decision to reduce the number of Ministers and their staff can be looked at in a rational way. The main motivation is obviously to reduce expenses. Less Ministers and Ministers could translate into a reduction in the number of Secretaries of State (which in Portugal are the equivalent of Ministers in the UK), their advisors and support staff. This is a potential cost synergy i.e. will lead to cost reductions.

There are risks associated with this reduction as well as strategic implications. There will be barriers to the implementation of this measure. Two major risks in my view are to concentrate power into fewer hands and work overflow.

Ministers are constantly monitored by Parliament. Reducing the number of Ministers would potentially lead to a greater role for Parliament. This would be a welcome change at a time when Parliament's role and relevance is also being questioned. It would also mitigate the first risk.

Work overflow may not be an issue at all. Being a Minister, as far as I know, is not similar to being a factory worker. Whereas someone working in a production line will only produce as much in an hour, a Minister, provided that he or she is properly briefed, can take decisions relatively quickly if needed. Reducing the number of Ministers could in fact increase the Minister's productivity and can be seen as a positive.

There are of course strategic implications. Some issues which deserve the attention of a Minister at present will get less attention. There are 14 Ministries at the moment (source Ministry of Justice and loosely translated!)
  1. Defense
  2. Justice 
  3. Internal Affairs
  4. Foreign Affairs
  5. Finance and Public Administration
  6. Economy and Innovation
  7. Agriculture, Rural Development and Fisheries
  8. Education
  9. Culture
  10. Science, Technology and "Upper Education"
  11. Public Works, Transportation and Communications
  12. Environment and Regional Development
  13. Work and Social Solidarity
  14. Health
In addition, Government includes the Prime Minister, the Minister of the Presidency (in charge of liaising with the President) and the Minister of Parliamentary Affairs (in charge of liaising with Parliament).

A rational and dispassionate way to look at this question would be to use similar criteria to those used when looking at the benefits of a merger between two companies. Companies merge for a number of reasons which cannot be properly detailed in a post. In this particular case, if it is felt that the end users of public services (i.e. all of us) are not getting any value from some of these 14 Ministries, then their existence can be questioned. To draw a parallel, if a company is not adding anything relative to its competitors, if it does not have any competitive advantages, it is likely that shareholders will question whether it should merge with a competitor in order to produce synergies.

The same could happen with Ministries. What is the added value of the Ministry of Agriculture and Fisheries? Did it contribute in any way to create competitive industries? As far as I know the answer is no. How about the Ministry for the Economy and Innovation? The proof is in the pudding and again the answer seems to be negative. A merger is a way not only to reduce costs but also to send a signal: if a Ministry is unable to produce any tangible results over a decade, it should be axed. I know - it is a tough measure, designed for tough times.

Tuesday, December 14, 2010

As três fases da negação

Como é que vai ser 2011 para a economia portuguesa? Será que Portugal devia aceitar o apoio da UE e do FMI?

Dylan Grice escreveu um artigo sobre uma ideia que também me tinha ocorrido e que achei interessante. Tem a ver com a reacção das pessoas e dos políticos, em Portugal e na Europa, relativamente à crise que estamos a viver actualmente. Chama-se "the three stages of delusion" e acaba por ser uma reflexão sobre a situação actual da economia europeia.


A maioria das pessoas ainda não se terá apercebido da gravidade da situação 

A ideia é a seguinte: as pessoas têm uma reacção muito típica quando enfrentam dificuldades. Começam por viver em negação, que tem três níveis ou fases:
  • A primeira fase consiste em recusar que existe um problema. Essa fase já passou para a maioria dos analistas. As pessoas, o Governo, a comunicação social claramente já perceberam que há um problema por resolver!
  • A segunda fase consiste em recusar entender a dimensão (elevada!) do problema. É a fase que estamos a viver. O Governo vai provavelmente aceitar qualquer dia que a "ajuda" da UE e do FMI é inevitável. Vai até haver quem defenda que Portugal não precisa da ajuda, que devia resolver o problema sozinho. (A verdade é que mesmo com o apoio da UE e do FMI a coisa vai demorar muito tempo a resolver-se. Se a ajuda não vier, ainda será pior);
  • A terceira fase consiste em dizer que o problema não tem nada a ver connosco
Uma nota: O que se passou em Portugal durante os últimos anos, como já todos sabemos, foi um aumento descontrolado da dívida tanto das empresas, como do Estado e dos particulares. O Estado, os bancos e os próprios consumidores endividaram-se a um ponto que não é normal. Houve pouco investimento em acções e quase nenhuma ida à bolsa. Isto colocou a economia num estado de grande vulnerabilidade externa. Vários economistas argumentam que o indicador mais relevante da vulnerabilidade externa de um país acaba por ser o endividamento bruto, uma vez que este é o montante que precisa de ser refinanciado e sobre o qual recaem os juros a pagar. O FMI calcula que o endividamento bruto de Portugal atingia os 215% do PIB em 2008, superando largamente os valores da Espanha (156%), Grécia (147%) e Itália (117%).

Outra nota: O gráfico abaixo também ilustra a gravidade da situação. Mostra os spreads sobre a dívida pública portuguesa durante os últimos 6 meses. Só para dar algum contexto sobre o mercado da dívida pública: normalmente os spreads são contados em pontos de base ou seja, centésimos de um ponto percentual. Um comentário habitual ao mercado da dívida soberana seria "houve um aumento de 25 pontos de base" o que já é considerado "dramatic" nesse mercado. O gráfico que se segue é de arrepiar... Estamos a falar de variações de 150 pontos de base em poucos meses.





(Fonte Bloomberg)

Quais são os problemas de fundo?

Voltando às perguntas iniciais: a meu ver, existem três problemas de fundo, que vão condicionar os próximos anos na economia portuguesa:
  • A primeira dificuldade, a mais premente, é que a economia portuguesa não vai conseguir gerar riqueza suficiente para que as dívidas contraidas sejam pagas nos prazos previstos. Ou seja, o PIB português pode não chegar para que as empresas, os bancos e o próprio Estado continuem a sua actividade normal e ao mesmo tempo paguem os encargos relacionados com a dívida contraida. Este problema dificilmente será resolvido nos próximos 5 anos
  • A segunda dificuldade, que acaba por ser o problema de fundo, é que vai ser necessário que o país se torne mais competitivo. Vai ser preciso apostar nos sectores do futuro, como nota Maria João Rodrigues nesta entrevista ao DN. Só que o país vai estar a pagar uma dívida enorme. Um país endividado não está preparado para se reconverter e ganhar competitividade. Por mais que o Governo queira, se os investidores não quiserem investir, ninguém os pode obrigar;
  • A terceira dificuldade, mais difícil de resolver é a corrupção e os "jobs for the boys" que são o estado natural das coisas em Portugal, sobretudo no que diz respeito ao chamado Sector Empresarial do Estado, como prova este post no "Portuguese Economy".

Uma questão que polariza os analistas

Os analistas que, tanto em Portugal como no estrangeiro, tentam responder às perguntas "será que Portugal precisa de ajuda externa" ou "será que a ajuda externa é inevitável" dividem-se, na minha opinião, em três campos:
  • Há os que estão convencidos que não é correcto que a UE e o FMI ajudem Portugal, ou que não é preciso. Segundo a análise acima, estão na segunda fase de negação. Uma outra abordagem que acaba por ser mais ou menos equivalente, consiste em discutir se moralmente, é adequado ajudar um país no sentido de lhe providenciar liquidez. Qualquer economista que tenha estudado estes assuntos responde que (i) a moral não é para aqui chamada (ii) sim, é adequado, em certas condições. Mas há quem pense o contrário, nomeadamente os operadores de mercado tais como Jim Rogers. É a lógica do "Moral Hazard": se eu como indivíduo me endividar de forma excessiva, ninguém me vai ajudar. Por que carga de água é que um Estado pode pedir ajuda a Bruxelas? (esta parece ser a opinião generalizada dos eleitores alemães). Outros comentadores, como João Marques de Almeida no Diário Económico de 13 de Dezembro, acabam por se colocar neste campo de outra maneira: a culpa é dos portugueses e dos seus governantes, os alemães não querem pagar pelos erros dos outros;
  • O segundo campo inclui os comentadores (mais raros) que dizem que é preciso ter confiança e que a dificuldade vai ser superada. Por exemplo João Galamba no Jugular. Estão, a meu ver, na primeira fase da negação ou seja ainda não entenderam a gravidade da situação;
  • O terceiro campo é composto por analistas que afirmam que a UE deve apoiar os países que estão em má situação e injectar liquidez no sistema - rápido. Penso que se trata da atitude mais frontal que consiste em admitir que a situação está descontrolada e não pode continuar assim.  O Estado português, nomeadamente, vai precisar de reduzir o seu défice ainda mais do que aquilo que foi anunciado e tenho dúvidas que o consiga fazer sozinho - como indica esta tabela produzida pelo Gavyn Davies. Haverá que chegar a um compromisso e andar para a frente. Os bancos americanos, alemães, ingleses de outros países europeus iriam perder muitos empréstimos concedidos a empresas portuguesas (e ao próprio sistema financeiro) como indica, indirectamente, Pedro Lains, se essa intervenção não se materializar.
O argumento do "Moral Hazard"

Antes do mais, penso que é preciso questionar a opinião segundo a qual o "Moral Hazard" deve impedir os países ditos periféricos, entre eles Portugal, de beneficiarem do apoio da UE.

Os bancos, os analistas e comentadores, todos parecem apontar para os problemas da economia portuguesa, a sua falta de competitividade, o elevado déficit do Estado, o peso das importações. Sem dúvida que existe um problema de competitividade e sem dúvida que o Estado tem demasiado peso em Portugal. Mas para que a Alemanha exporte é preciso quem importe. Os países não podem todos exportar, é uma impossibilidade!

Para que os bancos alemães, ingleses, franceses, Americanos tenham actividade, é preciso que alguns países se endividem. Será que só agora é que o sistema financeiro despertou para a realidade do que tem sido a última década em Portugal? O gráfico abaixo mostra a dívida líquida externa dos países da "periferia". Houve um aumento significativo da dívida externa desde 1997 (que neste caso corresponde a um declive negativo na curva) - mas para que um país como Portugal se endivide, é preciso que o sistema financeiro esteja disposto a financiar. Trata-se de um movimento mais ou menos contínuo e longo, desde 1997. Temos que pensar num ciclo muito longo. A situação não é de agora.


(Fonte: Deutsche Bank)

Mais um elemento - porque é que o Estado português apoiou o BPN, que é um banco que em princípio não coloca um risco sistémico a nível europeu... Ninguém se preocupou em responder a esta pergunta. O que aconteceu de facto é que a fraude de alguns está a ser paga por todos. A factura já vai em quase 5 mil milhões de Euros... Para Portugal trata-se de um montante significativo. O que aconteceu de facto foi que o Estado ficou com o risco do sistema financeiro português, que repartiu pelos contribuintes.

Tudo isto para concluir o seguinte: o argumento do "Moral Hazard" parece-me muito fraco. Entendo como natural que os países da UE montem mecanismos de apoio (já agora, não é ajuda, terá que ser pago) a Portugal. Não sei se são Alemães, Franceses, Ingleses, tanto faz do meu ponto de vista. Os parceiros económicos de Portugal estão envolvidos há muitos anos nesta situação. Tanto as empresas, como os bancos, como os próprios governos. Lavar as mãos nesta altura parece-me ridículo.

Quais são as soluções?

Só vejo 4 soluções (como indicado por um analista chamado Omar Sayed que escreve na newsletter do John Mauldin) (i) aquilo a que se pode chamar um Plano Marshall II (ii) o tratado de Versailles II (iii) imprimir dinheiro (iv) a opção da Islândia.

A opção "Plano Marshall II" consiste na aquisição, por parte do BCE, de obrigações do Tesouro dos países mais fustigados (nomeadamente, Portugal). Alternativamente, os países da zona Euro como um todo poderão começar a emitir obrigações europeias. Existem várias perguntas sobre a melhor maneira de o fazer. Seria necessário criar um fundo ou uma instituição vocacionada para emitir obrigações.

Ainda no quadro do "Plano Marshall II" haveria que canalizar fundos estruturais para Portugal, por exemplo para financiar projectos de infra-estrutura...

O BCE já está a comprar obrigações e dívida Grega, Irlandesa e Portuguesa... Os fundos europeus continuam a vir para Portugal, quase tudo a fundo perdido. Pelo que podemos afirmar que estes mecanismos já estão em funcionamento, será mais uma questão de escala. A emissão de Eurobonds poderá marcar a diferença.

A opção do "Tratado de Versailles II" consiste simplesmente em esperar que as economias mais fracas tais como Portugal, reajustem os salários na baixa para ganhar competitividade. Esta opção vai doer. Isto já está a acontecer e contráriamente ao que muitos analistas afirmam, não tem havido grandes sobressaltos a nível social. Aqui em Portugal, houve um dia de greve geral e mais nada. Não vejo grandes problemas em que esta solução continue a ser aplicada.

A opção (iii) consiste em continuar a imprimir dinheiro até a situação se resolver. Isto só pode resultar em inflação e não resolve o problema. O BCE decerto não vai continuar a imprimir dinheiro para sempre sob pena de criar inflação. Esta opção está posta de lado a médio prazo.

A opção (iv) consiste em re-estruturar a dívida e fazer com que os accionistas dos bancos e os detentores de dívida de bancos portugueses levem uma marretada valente pelos erros cometidos. Como na Islândia. Até à data isso ainda não aconteceu em Portugal...

Conclusão

O chamado "Plano Marshall II" já está a acontecer. Também o "Tratado de Versailles II" já está em marcha. Contráriamente ao que pensam vários analistas, sou da opinião que tudo isto poderá acontecer ao mesmo tempo.

O que me parece que vai acontecer em Portugal em 2011 é uma combinação de apoio do  BCE na compra de dívida a curto prazo, juntamente com um ajustamento pela baixa dos salários e o prolongamento dos fundos estruturais a entrarem.

A única peça que falta no puzzle acaba por ser a reestruturação da dívida dos bancos. Ainda parece haver muito por fazer para que Portugal volte a encontrar um caminho de crescimento para a sua economia.