TRADE IN VALUE ADDED: PORTUGAL

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1 TRADE IN VALUE ADDED: PORTUGAL The international fragmentation of production in global value chains (GVCs) challenges the way we look at the global economy. Today, what you do - the activities a firm or country is involved in - matters more for growth and employment than what you sell - the products that make up final sales or exports. Understanding how GVCs work and how they affect economic performance is essential, as is determining which policies help derive the greatest benefits, and reduce the risks. The OECD-WTO Trade in Value Added (TiVA) database facilitates analysis of GVCs by measuring trade in value-added terms to generate new insights about the commercial relations among economies and the process of value creation. Drawing on the third version of the TiVA database, this note describes Poland s trade patterns in value-added terms, with a view to informing policy debates in a range of areas, including trade, innovation, and investment. Accompanying this note is a User Guide designed to assist interpretation and provide context to the indicators presented: Key findings Although the foreign content of Portugal's exports increased to 32.6% in 2011, compared to 28.4% in 2009, it remained lower than the pre-crisis high of 33.5% in 2008 Just over half of Portugal's exports (52.4%) reflected exports of intermediates in value added terms, one of the lowest rates in the OECD. Nearly half (45.5%) of all intermediate imports were used in the production of exports in Over half (54.1%) of Portuguese manufacturing domestic value added was driven by foreign final demand, with especially high levels of export orientation in the Basic Metals (87.9%) and Motor Vehicles (86.8%) industries. The service sector contributed over half (57.7%) of total value-added exports in 2011, above the OECD average (54.3%). Although remaining relatively small, exports of intermediate goods and services in value added terms with Brazil and China increased significantly between 2008 and 2011.

2 The role of foreign and domestic value added in exports Although the foreign content of Portugal's exports increased to 32.6% in 2011, compared to 28.4% in 2009, it remained lower than the pre-crisis high of 33.5% in 2008 (Figure 1). Figure 1. Foreign value added content of gross exports by country percent, 2008, 2009, and 2011 (right insert = time series for Portugal) Of Portugal's total exports of domestic value-added in 2011, 52.4% reflected exports of intermediates, higher than the share in 2009 (48.4%), in part reflecting the rebound in GVCs which were disproportionally affected by the crisis, and higher than in 1995 (46.6%) (Figure 2), but significantly lower than the OECD average of 61.5%. Figure 2. Domestic value added content of gross exports by end-use category by country percent, 1995 and Intermediate goods and services 2011 Final goods and services 2011 Total 1995 Intermediate goods and services

3 Agriculture Wood & paper Non-metallic minerals Other manufactures Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Total Agriculture Wood & paper Non-metallic minerals Other manufactures Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Direct exports by the Wholesale, retail & hotels industry (reflecting tourism and upstream distribution services) generated the greatest source of domestic value added in 2011, accounting for 14. of the total value added of exports. The next three most important industries were Transport & telecoms (9.9%), (5.4%), and Business services (4.1%) (Figure 3a). The largest foreign contributions were in the and industries, which together contributed 8.4% of Portugal's total exports. With the exception of the industry (which partly reflects price movements), the foreign content share of exports changed relatively little between 1995 and 2011 across most industries. The three industries with the highest foreign value added share were (88.4%), (58.3%) and (52.5%), compared to 64.9%, 56.5% and 47.4% in 1995 (Figure 3b). Figure 3a. Portugal's industry share of domestic and foreign value content of gross exports percent of total gross exports, 2011 DVA contribution to gross exports, 2011 FVA contribution to gross exports, % 16% 14% 12% 1 8% 6% 4% 2% Figure 3b. Portugal's foreign value added content of gross exports 1995 and 2011 FVA share of gross exports, 2011 FVA share of gross exports,

4 Agriculture Wood & paper Non-metallic minerals Other manufactures Utilities Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Total Of the total value of Portugal's imports of intermediate products and services, nearly half (45.5%) was subsequently embodied in exports, slightly higher than the OECD average (39.3%) and higher than in 2009 (37.9%) (Figure 4). The products with the highest import shares were (78.4%), (63.5%) and (59.). Figure 4. Portugal's imported intermediate inputs used for exports, by import category percent of intermediate imports, 2008, 2009, and The destination of domestic value added produced in Portugal Of the total domestic value added produced by the manufacturing sector in Portugal, 54.1% was driven by foreign final demand in 2011, higher than in 2009 (46.5%), 2008 (49.7%) and the OECD average (41.9%) in 2011 (Figure 5). Figure 5. Manufacturing domestic value added in foreign final demand by country percent of total manufacturing value added, 2008, 2009, and 2011 (left insert = time series for Portugal) Note: Final demand excludes inventories: See also 3

5 Agriculture Wood & paper Non-metallic minerals Other manufacturing Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Total Manufactures Total At the total economy level, 25.1% of Portugal's domestic value added was driven by foreign final demand, with significant differences across industries. (87.9%) and (86.8%) had the highest level of export orientation in Portugal, with the lowest shares in Business services (20.8%) and Finance & insurance (21.2%) (Figure 6). Figure 6. Portugal's domestic value added in foreign final demand percent of value added by industry, 2008, 2009, and Note: Final demand excludes inventories: See also In gross terms, Spain (25.2%), France (11.6%) and Germany (8.6%) were the three most important Portuguese export market destinations, with rankings for the top three unchanged in value-added terms (Figure 7, top). For imports in gross terms, Portugal's top three partners were Spain (33.9%), Germany (10.1%) and France (7.4%), with again ranking for the top three unchanged in value-added terms (Figure 7, bottom). Figure 7. Portugal's exports to and imports from main partner countries percent of total gross and value added exports and imports, % 2 15% 1 5% 4 35% 3 25% 2 15% 1 5% Gross exports Domestic value added embodied in foreign final demand Gross imports Foreign value added in domestic final demand SAU 4

6 Considering only exports of intermediates goods and services, Portugal's major export destinations in 2011 were: Spain (26.2%), France (9.4%), Germany (8.8%) and the United Kingdom (5.6%), (Figure 8). Although remaining relatively small, trade with Brazil and China increased significantly between 2008 and Figure 8. Portugal's domestic value added embodied in intermediate exports to main partner countries percent of total intermediate exports, in value added terms, 2008, 2009, and % 3 25% 2 15% 1 5% SGP The importance of services In 2011 the service content of total exports in Portugal was 57.7%, above the OECD average of 54.3%, (Figure 9). Figure 9. Services content of gross exports by country, gross and value-added terms percent of total gross exports, Domestic VA content Foreign VA content OECD average SNA service export share Note: SNA services export shares include re-exports in the denominator, and include any actual differences in free on board and basic prices (the distribution margin provided by resident distributors to resident exporters) in goods. 5

7 Agriculture Wood Paper, print, publsh Non-metallic minerals Other manufacturing For exports of manufactured goods alone, 40.3% of the total value reflected services sector value-added, above the OECD average (36.9%). Of this share, the Wholesale, retail & hotels sector accounted for 14.5% of total gross exports, with Business services and Transport & telecoms accounting for 10.6% and 5.2% respectively (Figure 10). Figure 10. Services value added embodied in manufacturing exports, by country percent of total gross exports, 1995 and Construction Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services 1995, Total 45% 4 35% 3 25% 2 15% 1 5% At the individual sectoral level, the services content of exports was similar to the OECD average across most industries, with the notable exception of the industry (where the services content was significantly higher at 54.5% in 2011) (Figure 11). Figure 11. Portugal's Services content of gross exports, by exporting industry and service category percent of gross exports by industry 2011 Construction Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services OECD average

8 The origin of domestic consumption In 2011, 26.2% of Portugal's total final domestic consumption reflected foreign content, of which Europe contributed 17.5 percentage points (pp), NAFTA 1.4 pp, East and Southeast Asia 1.5 pp, South and Central America 1.2 pp and other regions 4.7 pp (Figure 12). Figure 12. Foreign value added content of domestic consumption by country by source region, Europe NAFTA East and Southeast Asia South and Central America Other regions Further Information The information included in this note is based on the 2015 edition of the Trade in Value Added (TiVA) database.» Access the data at Please contact us with your questions at tiva.contact@oecd.org 7