THE EFFECTS OF COVID-19 IN THE PORTUGUESE BUSINESS DYNAMICS

Evolution of Newly Created Companies

In the 1st Trimester of 2021 9.950 companies were created, that, in comparison with the same period of 2020, represents a decrease of 16,68%.

By analysing the first trimesters since 2017 it can be observed that the growth tendency, until 2020, was positive, decreasing from then on. Remember that, it was in the first trimester of 2020 that the first nationwide confinement was decreed thus justifying this decrease.

In regard to geography, the districts where entrepreneurs made their biggest bets in this first trimester of 2021 were: Lisboa, Porto, Braga, Setúbal e Faro.

When comparing a 5-year history these, in the entirety of the 20 districts, have a weight of 71,5% in the creation of new companies.

In terms of sectors of activity, in the 2016-2020 period, the Top 5 in creation of companies, matches with the combined reading of the three first months of 2021, being the sectors of Services (25,5%), Retail (12,19%), Hospitality and Tourism (11,82%), Real Estate (10,60%) and of Construction (9.94%). In the majority all of the sectors, until 2019, presented a tendency of accentuated growth, being reversed from 2020, the result of the start of the first period of the pandemic.

It is concluded that, in the last five years, the Third Sector worked as the catalyst of the national economy. Indeed, with the development of the market economy and with globalization, this Third Sector is the one that has grown the most, currently, worldwide. Its weight in the total of the new companies, represents 70%, in the 2016 to 2020 period.

 2020 was without a doubt an important mark in the business, since it interrupted a development tendency, due to the confidence of the entrepreneurs, with a strong bet in new businesses. Covid-19’s impact was, the brake of this trajectory.

The Evolution of Companies Closures

In the first three months of 2021, 9.624 companies closed their doors, in comparison with the same period of 2020, it represents an increase of 103,77%. In spite of not being a good indicator of the Portuguese economy dynamics, we can’t forget that the balance between new companies (9.950) and those that closed down this first trimester of 2021 is slightly superior in favor of the creation of new companies, balancing, this way, the numbers of the Portuguese business fabric.

Going five years back in time, all of the first trimesters presented a tendency of company’s closures. In 2017 the consequences of the past-2017 crisis were still felt and a lot of companies didn’t have the capability to survive. In contrast, from 2018 on, a more rigorous application of the legislation was made, this legislation establishes, unofficially, that the commercial societies who during two consecutive years didn’t had registered their accountability to the Tax Authority would be dissolved and liquidated. However, after 2019, there was a meaningful decrease of this indicator.  From 2020 to 2021 an exponential increase in the number of companies that closed their activity, is noticed, once again, as a consequence of the effects of the pandemic in the economy.

Geographically the districts where the biggest number of companies closures occurred in the first trimester of 2021 were practically the same where new companies were created: Lisboa, Porto, Braga, Setúbal with the exception of Aveiro.

In a context of the last five years, the pattern repeats itself and only these five districts, totaled 71,22% of the closures of companies, with Lisboa, registering 34,38%, more than half of that percentage. However, this district, as identified above, is also, where the most companies were created.

From 2016 to 2020, the Top 5 sectors where the most closures occurred differ little from the first trimester of 2021 analysis, maintaining, this way, the tendency. Along the five years we had the Retail, Construction, Wholesale and the Services sector with courses of evolution practically symmetric, with the increase from 2017 to 2018 and a positive slowing tendency of dissolutions until 2020. The fifth sector, Hospitality and Tourism, diverges, because it presents a new increase in closures starting in 2019.

In an analysis of the first trimester, as mentioned, the four sectors identified above maintain themselves, except Wholesale, that, in this three-month period was overtaken by the Real Estate sector.