ALGARVE - Economy
An open region
Algarve is a region open to Europe and to the world, with a competitive strategy based on valuation of its natural, human, cultural and economic resources.
The Algarve has generated some 3.6% of Portugal's Gross Value Added in 1999. The economic structure of the region is in imbalance in terms of the distribution of employment and the sectors of economic activity. For instance, 75% of employment in the region is concentrated in the coastal strip and 84% of the population is employed in agriculture and services sector. Tourism and services are the backbone activities of the region's economy. The region has a growing economy that has been gaining importance in a national scope, ranking the second position in what concerns purchasing power per capita. The narrow range of economic activities and the dependency on the external market (foreign tourists) make the productive structure in the Algarve extremely vulnerable.
The vitality of Algarve's economy expresses the investors' trust and reflects the region's entrepreneurial and social dynamism, reinforced by major public projects achieved during the last two decades, at an infrastructure and collective equipment level. The availability and diversity of endogenous resources, the regional market growth perspective, the existence of a tourist market oriented to differentiated products, as well as the development of an innovation regional system mirror a scenario of opportunities for prospective investors in the region.
A lack of diversity in the regional economy
Agriculture contributed 7% to the GVA in the region in 2000 and accounted for 3% of the GVA in this sector in Portugal. This activity is based on intensive farming and is specialised in the production of fresh fruit and vegetables - particularly citrus fruit, of which it is responsible for two-thirds of Portuguese production. In the inland areas dried fruits are important, especially almonds. In terms of livestock, the production goes to small ruminants (sheep and goats) and pigs, in the hill areas, and to poultry rearing, which is of great importance in the municipality of Loule. Fishing contributes 3% to the region's GVA. Apart from that, it represents a little more than 3% of total employment and supports the fish canning industry, which is the main processing industry in the region. The secondary sector accounted for 14% - still in 2000 - of the region's GVA, of which 10% is in construction. The region's processing industry is not highly developed and comprises mainly foodstuffs, beverages and tobacco products, as well as non-metal minerals. The structure of the region's economy is such that a large part of investment is concentrated in the construction industry which, for its part, is an activity highly dependent on imports (energy, steel, etc.), with the result that the trade balance with other regions is negative. In short, the Algarve does not have a strong and independent sectoral structure capable of developing and diversifying the production sector, since it has to import most of the consumer products and capital needed to satisfy the needs of the regional market.
Fresh vegetables and tourist development to the fore
The growth of intensive farming and the abandonment of the hill regions of the Algarve have led to the decline of traditional agricultural produce (figs, almonds and carob beans). From the start of the 1980s, agriculture began to specialise and to use intensive systems for the production of fruit and vegetables in orchards or irrigated gardens. The region's climate offers comparative advantages for such systems of production, since it allows the produce to be marketed at the start of the season and hence to benefit from the added value resulting from early sales. The fishing sector is still of importance in the Algarve. Fishing in the region accounts for 22% of the national fleet, 29% of the registered fishermen and 21 % of total annual production in the country.
Aquaculture has been developing in recent years and, in addition to the traditional production of molluscs, there have been numerous successful experiments in fish farming involving the conversion of estuaries and salt-water lagoons. Industry is one of the sectors of minor significance in the economy of the region, which has never been known for its industrial base, with the exception of the canning and cork industries. In recent years, as a result of speculation in real estate and the seasonal nature of the supply of labour, the situation in industry has become worse and now amounts to a major crisis. Within the secondary sector, the branch which has shown most growth is construction and public works, which have derived some benefits from the development of tourism. The tertiary sector has a great importance in economy. Its expansion is due mainly to tourism, particularly through the synergy it creates around it, and in terms of factor of production it has now overtaken agriculture and industry.
A structure based on tourism
The business structure of the Algarve is determined largely by the development model adopted in recent decades and based essentially on the growth of tourism. This development model explains why most of the undertakings are in the tertiary sector (64%), with particular emphasis on the retail trade and hotels and restaurants.
The fact that the economy is based on an activity of a seasonal nature and largely dependent on external markets has given a decisive push to the role of small businesses (with less than 20 workers), which account for 99% of the total number of businesses in the region. The most frequent legal forms - again under the influence of the development process adopted - are sole proprietorships (80%), with a low percentage of limited companies (17% private limited companies and 0.4% public limited companies). As regards the other sectors, it is worth highlighting fishing which is one of the sectors of traditional importance in this region, since it accounts for about a third of business in the primary sector and forms the basis for some of the job-creating processing industries (fish canning and boat building and repair).
Tourism - a key sector of the regional economy
Recent economic trends in the Algarve suggest the existence of an interrelationship between tourism and development in other sectors. Tourism is responsible for the development of other activities in the tertiary sector which are linked to it directly or indirectly, such as the construction industry and, through it, some branches of industry such as non-metallic mineral products.
On the other hand, tourism also lies behind a contradiction between the development of activities linked to it and the other sectors, and is responsible for aggravating the intraregional imbalances caused by a model which has favoured the coastal strip. Since it is competing with industry and agriculture for the various factors of production (business initiative, capital, labour, land and water), the development of tourism has pushed those sectors into second place, while at the same time increasing the regional economy's specialisation in an activity which is highly seasonal and dependent on external markets.
Despite all this, the beauty of its beaches and the magnificent weather make the Algarve one of the main tourist destinations in the country, and it is the region of Portugal with the greatest accommodation capacity (39% of the national total) and the largest number of overnight stays (43% of the national total, representing 14.6 million overnights) in 2001. This represents the most significant contribution (33.5%) to Portugal's hotel income.
Basis for economic development
All development in the Algarve derives from the region's close relationship with the sea, initially for fishing and subsequently as the principal tourist attraction. Fishing activities are concentrated in various ports along the coast, the main ones in terms of numbers of boats, registered fishermen and catches landed being Olhão and Portimão. The coastal strip has also seen the development of aquaculture which, taking advantage of the particularly favourable natural conditions, has achieved major growth and could, in the near future, become a credible alternative to the decline in some sectors of fishing. On the other hand, the ports in the Algarve are not particularly suitable for sea transport, and movements of goods are not very significant, accounting for only 1 % of cargo vessels entering Portuguese waters, 2% of goods transported and 0.5% of goods unloaded.
The volume of freight carried by maritime transport has been constantly decreasing since the mid-1990's. The volume of goods carried by sea in the region was 68% less in 2001 (174 thousand tonnes) compared to 1995 (543 thousands tonnes) while the total volume of the country stagnated over the same period. The transport of passenger is negligible.
The land transport network is made up of 95 kilometres of motorways and 167 km of railways in 2001. The region's railway network accounts for only less than 6% of the national network.
The air transport presents different evolutions for freight and passenger transport. Concerning goods transport, there was stagnation during the end of the 1990's, followed by a rather important increase in 2000 and a decline in 2001. There were 1.9 million tonnes of goods carried to/from the region in 2001and it is the first time since 1991 that this amount is under 2 million tonnes. Passenger transport has however an important increasing trend: 71% more passengers were transported in 2000 compared to 1990. However, the region's airports have registered a decline of their passenger transport in 2001 compared to 2000 (-2.7%).
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