Recovery and Resilience Plan: the particular case of the Algarve

It is urgent to invest in the industrial and technological sectors, softening the importance and relative weight of tourism in the Algarve region.

The Recovery and Resilience Plan (PRR) is a national plan, which aims to implement a set of reforms and investments aimed at recovering the productive fabric, articulated with the climate and digital transitions, reinforcing job creation, reinforcing economic cohesion , social and territorial and to resume sustained economic growth in a post-pandemic period, reinforcing the objective of convergence with Europe over the next decade.

Faced with the severe and unexpected impacts of the pandemic on European economies, the European Council created the Next Generation US. This, in turn, is a European strategic recovery instrument to mitigate the economic and social impact of the crisis caused by the covid-19 pandemic, in an execution period until 2026.

This instrument contains the recovery and resilience mechanism where the PRR fits which, in turn, is a reform and investment plan that was structured in three structuring dimensions: resilience, climate transition and digital transition.

The Portuguese PRR will be financed by funds Next Generation US, in a total amount of 16,6 billion Euros distributed by 13,9 billion Euros (ie, 84% of the total value) in the form of non-refundable non-refundable support (grants) and 2,7 billion Euros (ie, 16% of the total amount) in terms of loans.

In the specific case of the Algarve region, the PRR should complement the structural investments of the regional operational program with a reinforcement of its allocation by 300 million Euros, with an increased focus on value creation, job creation and the diversification of the base Algarve, ensuring the strategic importance of tourism for the balance of payments, encouraging the development of other sectors of activity aligned with the regional RIS3 (sea, agri-food and healthy eating, cultural and creative industries, renewable energy and health and well-being ).

The highest incidence of the socio-economic crisis caused by the covid-19 pandemic occurred in the Algarve region due to its economic base highly dependent on tourism.

In 2020, the Algarve's regional Gross Domestic Product (GDP) amounted to 8706 million euros, which represented a historic drop of -16,7% compared to the same period in 2019, which is twice the decrease seen at the national (-8,4%).

The Algarve's contribution to the national GDP was 4,4% (ie, -0,4 percentage points compared to 2019). In the Algarve region, GDP per capita measured in purchasing power parities stood at 78% of the EU average (ie, -10 percentage points compared to 2019). The decrease in the Gross Value Added (GVA) of the trade, transport and accommodation and restaurant sectors of -33,9%, more pronounced than the national average (-17,5%) contributed significantly to the real contraction of the Algarve's regional GDP. .

These branches of economic activity have significant relevance in the region's productive structure and were strongly affected by the decrease in tourist activity associated with the restrictions imposed by the pandemic.

At the same time, the Algarve was the region of the country with the sharpest increase in the at-risk-of-poverty rate (ie, +3,9 percentage points compared to 2019). The strong impact of the pandemic crisis in the Algarve region had consequences in terms of growth and employment, something that was reflected in the income and living conditions of families.

The severe effects of the pandemic crisis accelerated and worsened social inequality, having a strong impact on the economy and society, significantly affecting the most vulnerable social groups.

These data suggest that the Algarve region needs to invest in the diversification of its economic base with other sectors of activity that are alternative to the tourism sector that create more jobs and generate high levels of added value and that are capable of making the Algarve economy more competitive, dynamic, inclusive, resilient, attractive, cohesive, stable, green and sustainable to face possible future external shocks, regardless of their nature.

Thus, and in relation to the Algarve region, the PRR presents the following structural investments:

>> The regional water efficiency plan, with an allocation of 200 million Euros, which aims at adopting efficiency measures on the demand side (urban, agricultural and tourism sectors), promoting the use of treated wastewater and strengthening management and monitoring of the resource.
On the supply side, it is worth mentioning the promotion of increased water availability in the region, resorting to the optimization of the exploitation of existing infrastructures and the reinforcement of the system with complementary water sources;

>> The requalification of the EN125's Olhão variant;

>> The cross-border connection between Alcoutim and Sanlúcar de Guadiana, which will represent an investment in promoting the development of the interior.

Not disputing the previous options, as the Algarve is a region heavily dependent on tourism, it would be interesting to consider the following investment areas/projects:

>> Construction of the Central University Hospital of the Algarve;

>> The creation of a regional housing strategy to solve the problems of access to housing in the region to promote social cohesion.
The Algarve is the region of the country with the greatest difficulties in accessing housing and has the most expensive houses in the country, right after Lisbon, due to the effects that tourism has had on the region.
Therefore, in order to retain the local population and attract new residents, the region has to guarantee affordable housing for the middle class and young people.
It is also important to highlight the creation of affordable university accommodation for Portuguese students, but also for international students that the University of Algarve has attracted in recent years through the slogan “Studying where it's good to live”;

>> The creation of a light surface rail connecting to the International Airport of Faro, the University of Algarve, Loulé and Olhão, as well as the development of a feasibility study for the rail link between the Algarve and Andalusia.
It is also important to highlight the creation of a more sustainable public transport network, from an environmental point of view and investments in the electrification of the Algarve railway line;

>> Support for the development of the mobilizing project of the Algarve Biomedical Center (ABC), which results from the consortium established between the University of Algarve and the Centro Hospitalar Universitário do Algarve (CHUA), promoting the development of knowledge in health, well-being and life sciences and their transfer to the market generating sectoral multiplier effects;

>> Investment in the cruise port of Portimão, in the western Algarve, with the reintroduction and consolidation of the maritime connection with Madeira and Morocco, integrating clean and sustainable solutions from an energy point of view in order to minimize context and consumption costs.
To affirm the potential of this port infrastructure and its contribution to complement and diversify the tourist offer, it is necessary to proceed with the dredging of the river Arade to Silves.
The investment in this port infrastructure could be a boosting factor for the tourism sector and for new investments in ship repair, contributing significantly to boosting the local economy and regional economic development.

At the same time, and in the longer term, there is an urgent need to focus on the industrial and technological sectors, softening the importance and relative weight of tourism in the Algarve region.

In particular, it is necessary to change the paradigm of the regional economic structure, focusing in particular on the agricultural sector, with emphasis on traditional agricultural products such as oranges, lemons, carob, almonds and figs. It is worth noting the importance of optimizing the traditional production of the region, using cutting-edge technology and the development of new cultures.

It is also important to create a strategy to market the region's traditional products in foreign markets, creating more jobs and generating more wealth in the Algarve, as well as valuing endogenous resources and associating the region's traditional products with the Mediterranean diet and promoting the promotion of healthy life.

It would be interesting to create a cluster do Mar in the Algarve, investing in activities such as fishing, aquaculture, marine biotechnology, shipbuilding and repair and marine renewable energies, contributing to create jobs and to the development of a more competitive, cohesive, inclusive, decarbonized and sustainable maritime economy.

Finally, it is necessary to develop the sector of new technologies through the construction of the cluster ICT, using the Algarve Tec Hub, attracting players international companies, entrepreneurs, investors and digital nomads.

Author: Ana Correia is a gem of an Algarve and with great pride. She is an effective member of the Order of Economists.
She holds a degree in Economics from the Lusófona University of Humanities and Technologies of Lisbon and a Master's in Business Finance from the Faculty of Economics of the University of Algarve.
She considers herself passionate about life, the Algarve and travelling. And, of course, she's a fierce sports fan.