CONTRIBUTION TO INTERAGENCY MEMORANDUM ON PORTUGAL

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900030099-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 8
• Document Creation Date: December 20, 2016
• Document Release Date: August 18, 2005
• Sequence Number: 99
• Publication Date: September 24, 1974
• Content Type: MF

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24 September 1974
SUBJECT Contribution to Interagency
r 1ie~:orandu_i on Portugal
Attached are the sections you requested on the current
economic situation in Portugal and the economic impact
of freeing the African colonies.
If you need any further
information, please
Ottice or conomic Research
Attachment: As Stated
Distribution: S-6491
Original + 1 - Addressee (handcarried)
1 - D/OER
24 September 1974
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PORTUGAL: THE EC0:101"11I C If-;PACT OF LOS I ~~G ANGOLA, 1' O-LAVB I OUE,
AND PORTUGUESE GUIUEA
SUMt iARY
Angola, Mozambique, and Portuguese Guinea as a group
clearly have been not economic liabilities to Portugal in
recent years. The costs to Portugal were mainly attributable
to the guerrilla wars. The cost of military operations in
Africa has been equivalent to perhaps 3% of Portugal's G"1P
and these operations have diverted about 43 of its labor
force into the armed forces,. In other -respects, economic
relationships between the Metropole and the three territorier.?
have been fairly well balanced and, probably, mutually
beneficial. If the move towar? independence follows its
present course, these relationships -- both private and
clove rntmhental --- will not be severely disrupted.
At home, Portugal faces severe economic problems stemini_nc-
from the new government's failure to provide economic
lcadership. The self-made problems are compounded by
the adverse ,balance--of-payment, effects of a higher oil
import bi.ll and of the loss of foreign exchange earnings
from tourism and from 'expatriate Portuguese workers as ecoronties
slump elsewhere. The slack in Por.t,hcia].'s economy will
reduce one of the immediate benefit:,' expected from the cut
in military operations, becausc c?ischarged soldiers will have
great difficulty fi.ndi.nd ci.vi]ian jobs.
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TRADE WITH THE TERRITORIES
Trade between Portugal and the Three territories
appears to be mutually beneficial, with neither side
having a pari:icular advantag?s. In recent years, Portugal
has run annual. trade deficits wi,'.h the group ranging as
high as $75 million. The deficits have resulted mainly
from trade with Angjola. Trade with ISozainbique has been
roughly in balance and there is regularly a surplus with
Portuguese Guinea. But with th(,~ Portuguese economy's
rapid expansion and the development of it5i trade with
other West European countries, the colonies' relative
importance in Portugal's tr~:::1e has declined rapidly.
The three areas' share of Portugal's exports dropped
from 23s in 1970 to 1053 in the first four months of this
year; their share of Portugal's imports fell from 14% to
9 % . The t?:etropol.e remained the key trading partner of the
three territories in 1.973, taking about 25% of Angola's
exports, 30`- of Mozambique' c, and 90`:, of Portuguese Guinea's.
Both sides' enjoy some special privileges in the trading
relationship. Portuguese exports, though subject to tariffs,
find a shelter-?d market in the territories. Goods from the
three areas -- of which coffee, sugar, bananas, and crude
oil are the most important -?- normally enter Portugal
duty- fr.cc. The most valuable special privilege to
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MILITARY COSTS
The main burden on Portugal of keeping the three
African colonies has been the cost of fighting guerrilla
movements. The overall military budget in 1974 is about
$580 million -- 27% of the total budget and equivalent
to about G% of GNP. Nearly 40% of -the military budget
(some $220 million) is for overseas military operations.
Allowing for Lisbon's habitual underestimation of government
spending in its budget proposals, the true financial cost
of the wars is probably close to $300 million annually.
In terms of man?Do;w;er, Portugal keeps about 250,000 men
in uniform -- about 8% of the total labor force. Half
of these troops are stationed in Africa. In normal
circumstances, the men now in Africa could be holding
productive civilian jobs, either in Portugal or elsewhere
in Western Europe. At present, ho-,.,ever, economic conditions
in Portugal are chaotic and unemployment is rising
elsewhcre in Europe. With jobs scarce, the immediate benefit
from releasing men from military service would be reduced.
There would still be some economic gain even if all the
returned soldiers are kept in uniform because they w' l
he spending more of their wages in Portugal, providing
sonic stimulus to the dor,.cstic economy and reducing the
flow of funds out of the country.
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Portugal. is its option of purchasing up to one-half of
Angola's crude oil production. It was this provision that
effectively shielded Portugal from the Arab oil embargo
last winter. Portugal reportedly pays relatively low
prices for coffee and tobacco from, the territories but
the total value of this benefit appears to be small --
perhaps $10 million annually for Angolan product-.s and
much less for those from l ozambicque . The Mctror.cle is
currently getting sugar from Moza,r,\5ique at a bargain --
about one-fourth the world price, equivalent to an $ 80
million annual saving. Arising from contracts signed
prior to the recent spectacular rise in world sugar prices,
this windfall will not endure. Indeed, until recently,
Portugal was paying a prcmiu.m price for Mozambique's sugar.
FINANGIiL FLC,'1S
The net flow of payments for services and unilateral
transfers bew?;cen Portugal and ii:.s Overseas Provinces
was nearly in balance in 1973. Portugal receives a
substantial not inflow of foreign exchange ?from such
items as foreign travel, i.nvestm nL income, and private
transfers. These recei.ptts? are offset by large government
transfers to the provinces -- $180 million in 1973.
Ilt i.s noi: c>c::::,i ,lcr-to s;oi:'arate the three African territories
in question, but t:hcy account for an ovc:i:;:hc11;.incj share of
.
tran..actiona between l.Portucjal and the Overseas Provinces
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I ith'respect to long-,Ler:1 :-ove;rents of capital, there was
a substantial net flew of funds from Portugal to the Overseas
Provinces. The net outflow in 1973 was $88 million, nearly
all official. Short- tern capital flows are quite small,
perhaps because of the exchange controls within the escudo
zone.
THE EsCUJ3 ZONE r,.:D THE D.-'AL;-,;,CE OF PAYMENTS
There will be a small net disadvantage for Portugal
if the escu o zone -- cons i sting of Portugal and its
overseas territories --- breaks up'. Angola has a large
trade surplus ;?:ith third countries, and the foreign
exchange reserves it earns and turns over to Portugal
strengthen the Portuguese escudo. Even without this
help, ho.:ever, Portugal's own balance-of.-payments position
has been very strong in recent years. The current account
surplus in 1973 was about $600 million, a very large amount
for an econcny of Portugal's size. Admittedly, higher oil
costs will cut the current account surplus by half, and
the current econo: is disruptions in Portugal will further
erode it. Nonetheless, over the next few years, Portugal
will probably have one of the stronger payments positions
in Western 3:uz?r, .e, if there is at least a semblance of
domcst:ic ecc::o:;ic order.
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THE IiIHITE SETTLERS
The one way in which loss of the colonies could impose
a severe immediate burden on Portugal would be through
a mass return of white settlers. There are approximately
900,000 such people in the three areas, most of them Portuguese,
If a majority chose to return to the :etropole, Lisbon
would have enormous difficulty trying to feed, clothe,
house, and employ them on top of its other economic
problems. It appears, however, that most of the settlers
will stay in Africa. Most want to stay and their. skills
certainly will be needed there.
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