This is Portugal. In recent years, the country has experienced significant change in the
structure of its economy due to becoming one of the most popular locations for remote
workers, typically from high-income countries in the world. Warm sandy beaches, vibrant culture,
great internet speeds and an affordable cost of living have attracted these so-called digital
nomads to live in Portugal, who were fully recognised by the government when the digital
nomad visa became available in 2022. This new migration pattern into the country is bringing
a range of economic benefits, such as increased spending on domestic goods and services,
as well as investment into local businesses. Cafes, coworking spaces and the tourism sector
have thrived, particularly in Lisbon, creating new jobs and reinvigorating a national economy,
which has trailed behind all other nations in Western Europe ever since it was bailed
out of insolvency by the IMF. In fact, digital nomads have been one part of Portugal's
wider strategy to become more attractive for tech startups and foreign direct investment
in an effort to drive economic growth in the digital era. But the steady inflow of digital
nomads has not come without negative consequences. Local residents have faced some of the largest
house price and rent increases of all developed economies in recent years as a result of the
short-term rental market, designed for people who are blurring the line between tourists
and skilled migrants. This is pricing some residents out of the city unable to compete
with the high spending power of digital nomads, which in some cases is even causing civil
unrest as the average Portuguese citizen struggles to see the tangible benefits of reshaping
their economy to accommodate these migrants, even with their hip new rebranding as digital
nomads. So, what factors have driven the rise of digital nomads? What impact is digital
nomadism having on the Portuguese economy? And finally, how does this fit into Portugal's
wider economic trajectory? Once we've done all of that, we can put Portugal on the Economics
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To fully understand the economic transformation of Portugal in recent years, we need some
context first. The last few years have been witnessed to the rapid normalization of remote
working. Lockdowns and social distancing during the COVID-19 pandemic aggressively
challenged the traditional office-based work model, forcing a major structural shift for
knowledge-based service sectors across the world. Consequently, working from home was
embedded into our economies, with some estimates projecting that it sped up the pre-existing
remote working trend by as much as 40 years in some developed countries, such as the United
States. On average, graduates across all of Europe, the Americas and Asia now spend 1.1
days per week working from home. Whilst this might not seem like much at face value, the
lack of wild variation between countries demonstrates just how widespread and accepted remote working
has become on a global scale. And as evidenced by the boom in digital nomads worldwide, remote
working does not necessarily mean working from home. Defined by their technologically
enabled professional skills and geographic independence, they are an inherently difficult
population to generate robust statistics on, which is why there are no concrete estimates
on their total population size globally. However, with 17.3 million digital nomads in the USA alone,
we know for sure that the total population is significant at a global scale, being larger
than 64% of all countries. The increasingly romanticised travel lifestyle, often depicted in
sun-soaked Instagram posts and adventurous travel blogs, is obviously a significant factor behind
the surge in digital nomads. However, underneath the bohemian melua for adventure lies a more
pragmatic motivation for working remotely that can be fully understood in economic terms through
a concept called geo-arbitrage. This is defined by the process of earning an income in a strong
currency and spending the income in an area with a lower cost of living to maximise spending power.
This phenomenon can be explained using the Economist's most tasty tool, the Big Mac Index.
In the USA, a Big Mac cost $5.69, whilst in South Africa, for example, it's going to set you back
$51.9. Let's say you have $6 and a big appetite. If we were in the USA, you can afford one Big Mac.
But if we exchange our $6 for RAN in the market rate of $1 to $19, then we'd get $114 RAND.
Magically, we have enough money to buy two Big Macs in South Africa. This example shows how the
cost of living can differ significantly between countries. Now, real macroeconomists don't use
the Big Mac Index, but they do use something similar called purchasing power parity, which
adjusts economic statistics for the cost of items in a local currency. The Big Mac Index is really
just a very simple and easy way to understand PPP adjustments. A digital nomad is perfectly placed
to exploit these differences. They can maximise their purchasing power by living in a relatively
low-cost country, whilst earning a high income from a high-cost country. Of course, this assumes
the barriers to travel between these countries are low, and in recent years, they have certainly
lowered as nations compete to attract them and their spending power. 54 countries now offer some
form of digital nomad visa designed as an easy route to live and work in a foreign country for
an extended period without the need to gain permanent residency. Portugal is one of the
nations competing to attract new and retain its current population of digital nomads,
having launched its own digital visa in 2022. When combining its advantageous coastal position
within Western Europe with its relatively low cost of living, Portugal is an attractive proposition
for digital nomads who want to avoid deviating from their employer or clientele's time zones too
drastically. And with the cost of living being 44% lower in Lisbon compared to London and 58%
lower compared to New York, the financial benefits are clear. The estimated 16,000 strong digital
nomad population in Lisbon, alongside the large digital nomad communities in other cities throughout
the country, demonstrates the strength of these pull factors. So that's all great for the digital
nomads that can live large in the European sun, but what's in it for Portugal? The immediate impact
of digital nomads is demand-led growth. With a high marginal propensity to consume, their higher
incomes are spent on local goods and services in Portugal, such as basic necessities, hospitality,
leisure and accommodation. This increases business income, which drives employment and living
standard increases more widely. In the medium term, the steady presence of digital nomads has
encouraged business investment. Sectors like tourism, co-working officers, digital infrastructure
and short-term rentals have grown rapidly in recent years, and in the long term, digital nomads are
shifting the Portuguese economy towards increased readiness to capitalise from major technological
advancements in the 21st century. This all sounds great, but there is a catch. By far the largest
problem for Portugal associated with digital nomads is the increased cost of living as a result
of demand increases for goods and services. In some areas, local wages can no longer compete
with the income of digital nomads in the rental market, creating a fragmented dual economy.
Local populations have been priced out of their own cities, particularly in Lisbon,
where the median house price increased by 50% from 2019 to 2023. In fact, as a country more
generally, Portugal's house price to income ratio has risen at one of the fastest paces
in the world since 2015, beaten only by New Zealand and the Czech Republic in this sample of nations.
This highlights a long-running issue around the affordability of home ownership for Portuguese
residents, who largely blame the boom in short-term letting market as a result of the golden
visa investors and multinational tech companies like Airbnb. And whilst digital nomads may not
account for the initiation of unaffordable house price growth in Portugal, which preceded the
advent of the digital nomad visa, their steady presence has only boosted demand for short-term
rentals, further restricting the supply of long-term housing to local residents, which has driven
prices higher. In light of this, sudden policy reform has made the strategic position of digital
nomads in the eyes of the Portuguese government less clear. Because of concerns for housing affordability
for Portuguese residents, the new government has implemented barriers to high-income immigration,
and whilst they may not directly affect digital nomads yet, they certainly place them in an
insecure and uncertain position. For example, the golden visa program, which was first introduced
in 2012 during Portugal's financial crisis and subsequent bailout, no longer accepts capital
transfers and real estate investments as eligible options to earn visas and eventual citizenship.
The non-hobitual residency tax scheme is also coming to a close. For now, the digital nomad visa
looks set to stay. What we can be sure of, however, is that the digital nomad population is part of
a wider trend towards Portugal, at least attempting to become a digitally advanced economy fit for
the 21st century. Since COVID-19, non-digital employment has declined sharply, whilst digital
employment surged at a rate noticeably larger than the rest of the Euro area. This increasingly
digital labour force, alongside an increasingly well-educated population of young working age
adults is warranting further investment into digital infrastructure. Digitisation has been
further driven by Portugal's advantageous geographic position as the closest point in
Europe to both North and South America, which has encouraged growing foreign investment in
subsea cable infrastructure as multinational corporations use Portugal as a digital gateway
between the continents. This is causing huge spillover benefits for Portugal, as companies
are flocking to build high-capacity data centres in the country to benefit from the low latency
in higher bandwidth, the quick access to subsea cables allow. And as the artificial intelligence
sector booms and global technology firms hungry for data processing power continue to grow their
dominant position in the world economy, Portugal is setting itself up to benefit from the opportunities
of the digital age. This is evidenced most notably with the $4.2 billion investment into
the large-scale data centre campus in the city of Sainz by the US investment fund Davidson
Kempler and British investment firm Pioneer Point Partners. This is the largest foreign
direct investment in Portugal in recent decades. With construction already underway,
the data centre is planned to create 1200 highly qualified jobs. But let's not get carried away
just yet. Whilst Portugal's digital transformation is occurring at an impressive rate, it currently
ranks average compared to the rest of Europe as a digital economy and society, primarily let down
by a slow implementation of its 5G network. Looking to the future, continued development
of digital infrastructure and foreign investment in technology gives digital nomads strategic
relevance in Portugal as the productive beneficiary of these investments, showcasing Portugal as a
global digital hub. Okay, now it's time to put Portugal on the Economics Explained leaderboard.
Starting as always with size, Portugal has a GDP of $255 billion, making it the 47th largest
economy in the world, so it gets a 6 out of 10. That's spread out over a population of 10.4
million, means the country has a GDP per capita of $24,515, roughly double the global average,
but only two thirds of the average of the European Union. Even still, it gives the economy a 7 out
of 10. Stability and confidence is not great, not terrible. The country is helped by its membership
in the EU and its use of the Euro, but it also has relatively high levels of national debt and
a general lack of industry diversity. Even still, it gets a 7 out of 10. Growth has been very weak.
Between the GFC and the Eurozone crisis and then the global pandemic, the country has seen no real
output growth in more than a decade, although it hasn't gone backwards, so it gets a 3 out of 10.
Finally, industry. The country is an advanced economy with advanced services, but nothing
truly world leading. It might very well be able to build out its own tech sector by being very
accommodating to foreign workers and foreign investment, but that's yet to be seen, so for now
it gets a 6 out of 10. Altogether, that gives Portugal an average score of 5.8 out of 10,
putting it down here on the leaderboard. A few months ago, we made a video about the
challenges of the European Union, which are highly relevant to Portugal in particular.
We didn't want to repeat too much here, but you should be able to click to that video on your screen
now. Thanks for watching, mate. Bye.