The administrative and regulatory barriers present in Portugal significantly contribute to the lack of competitiveness in the national economy. According to the “Position Paper No. 1 of 2025” from the Research Office at the Faculty of Economics of the University of Porto (FEP), these barriers, together with other distortions, explain Portugal’s 9th worst position out of the 38 OECD countries and 5th worst within the European Union (EU) in the OECD’s Product Market Regulation (PMR) Index 2023.

Authored by Óscar Afonso, director of the faculty, and Nuno Torres, head of the Economic, Business, and Public Policy Research Office (G3E2P) at FEP and the University of Porto, the study provides a thorough comparative analysis of the regulatory obstacles and barriers to competition in product markets (goods and services) in Portugal, compared with the OECD and the EU (using data from 26 member states). Notably, among the 46 countries evaluated, Portugal ranks 15th worst (see Figure 1 in the PMR “country note” for Portugal).

The most concerning situations – where Portugal performs worse than the median of countries in both reference areas, based on the PMR 2023 database from the OECD – are found in key components of the index: distortions caused by state intervention and barriers to domestic and foreign market entry (see Position Paper No. 1/2025 from G3E2P).

“Portugal needs greater regulatory efficiency and fewer barriers to market entry in order to promote competition and lower prices, which will also enhance the competitiveness of companies abroad, the potential of the economy, and the well-being of the population,” says Óscar Afonso, FEP director. “Structural reforms that reduce market distortions and foster a more competitive and dynamic environment are crucial for Portugal to reach higher levels of economic growth and living standards.”

According to Nuno Torres, “there are competitiveness deficits in the area of state intervention distortions, specifically in the impact of regulations – such as their effect on competition, stakeholder involvement, and lobby regulation – as well as in public ownership, regarding the number of public enterprises and their governance, and in commercial operations, including public procurement and activities in the services sectors.” The identified deficits extend further. “In terms of market entry barriers, these are high in services, and there is an excessive administrative and regulatory burden. Portugal is poorly ranked regarding administrative requirements for businesses, especially sole proprietorships, and in communication and regulatory simplification,” explains the head of FEP’s research office.

The study by the University of Porto researchers also highlights two network sectors where regulation has created very different competitive environments. “In telecommunications, we have the recent positive example of a new Romanian operator entering the market, which has already led to a significant price reduction, although the reported difficulties show that some competition barriers remain,” says Nuno Torres. “In railways, however, the lack of competition is evident, especially in passenger transport. We recommend greater liberalisation of the sector, following Spain’s successful model, and revising the National Railway Plan for broader adoption of the European track gauge and its acceleration, after years of delay.”

“More Legislative Impact Assessment Measures Needed”

To improve Portugal’s position in the PMR index, the study authors present 20 priority recommendations out of a total of 40 (see the list by areas in the Position Paper), of which the recovery of the “regulatory gate” mechanism, also known as the “one-in, one-out” rule, stands out. This measure dictates that whenever a new regulation creates contextual costs, another regulation with equivalent costs must be eliminated. This measure has likely never been implemented, despite being foreseen in a decree-law ten years ago, seemingly due to a lack of a defined methodology in the Council of Ministers, as stipulated in the decree-law (see Decree-Law No. 72/2024 of 13/5 attached).

“The indefinite postponement of this mechanism is a paradigmatic example of the stagnation and lack of ambition of our leaders regarding deregulation and state reform in general,” states Óscar Afonso. According to the FEP director, “we need to improve the legislative impact assessment, particularly in the process of prior analysis of new laws – especially considering their effect on competition – and ensuring that it contributes to legislative quality. We also need continuous mechanisms to assess the impact of existing legislation, with a view to its revision, as it is not enough to analyse new laws effectively.”

The conclusions of Position Paper No. 1/2025 emphasise that eliminating excessive regulation and bureaucracy, as well as barriers to entry, is a necessary condition for attracting foreign companies, which will enhance competition in the domestic market. “The change must be part of a deep reform of the state,” argue the authors. “Another essential condition to boost the attraction of companies and foreign investment is the restoration of fiscal competitiveness, especially in corporate income tax (IRC) – where we have the second-highest effective rate in the EU – also promoting competition in the domestic market.”

For the study authors, “investments and reforms under the PRR could improve the PMR index, but the impact will be small unless there are structural revisions of regulation” as recommended in the Position Paper.

For 25 years, the OECD’s Product Market Regulation (PMR) indicators have been the key metric for assessing regulatory environments for business competitiveness. These indicators evaluate how well a country’s regulatory framework aligns with international best practices, measuring obstacles to business establishment and competition, both economically and sectorally.

The Position Paper and its annex can be accessed on the G3E2P website.