The Luck of the Irish

by: Global Investing Editor

Like Portugal, Spain is also ceasing to be a PIIGS country. Its public accounts produced a deficit in H1 of 2.44% of GNP, a level half as high as the prior year H1 in euros, and nearly as big a drop in percentage terms (from 4.73%). This results from marginally better GNP starting in the new year that finally produced a growth figure of 0.11% in GNP year over year in July. Also helping was substantial revenue increases thanks to a higher value added tax.

But the main tactic for halving the deficit was cost cutting. This includes salary and benefit cuts for the state sector which brought the deficit to euros 25.774 bn euros from the prior year level of 49.801 bn. Costs and headcount and benefits were slashed in the state sector despite nasty-seeming strikes. The personnel cost for the ministries of justice and the interior notably rose only 1.3% in the half year.

Portugal fills in for China making on the cheap everything from mobile phones to luxury shoes, from car parts to carpets. And on back-to-school computers for kids. But you cannot buy either the computer or the company's shares.

Two unlisted Portuguese companies jointly make the portable Fernão Magalhães computer with Intel (NASDAQ:INTC) inside. JP Sa Coutu and Prológica, both from near Porto, also export the machine to Africa, Latin America, and European countries. But mainly they supply poor elementary level students in Portugal with computers costing 250 euros max to make. The Fernão Magelhães, built for kids, is tough and shock-resistent.

There are problems if you are not a Portuguese child. While the old Portuguese anti-QWERTY keyboard no longer prevails (obrigada Brazil), a third set of keys using alt/gr are hard for non-Lusitanophones to use. But it teaches the kids the accents they need for correct spelling. You are not allowed to call the first man to circumnavigate the globe Ferdinand Magellan in polite Portuguese society.

Another issue for oldsters is that the screen is too small for easy viewing by anyone over 20, and the keyboard is easier for women and children to work than for fat-fingered men (at least the Anglo-Saxon sized variety.)

Capacity is 40,000 units per month currently but a new plant is a-building for an undisclosed amount. Both companies are unlisted.

The new computer is a second model based on the “classmate” laptop developed for students in the USA by Intel.

Portugal's José Sócrates govt uses computer bargains for social policy and the subsidies were kept despite austerity. Recipients of unemployment insurance payments have to provide details on their job search and revenues via the Internet for which they can use free computers at town halls and libraries which also offer wi-fi. Sócrates at the new Magelhães plant groundbreaking boasted that the ultra-modern model was purely Portuguese, but for the microprocessor from Intel, to be replaced with a native processor as production is geared up. A batch of 500,000 computers/year is distributed free to primary school graduates from poor families and other worthies like teachers and workers in job training programs. Others have to pay euros 20 to 50 depending on family income, currently equivalent to $25-60, under the 5-yr old e.escolinha program. The govt is paying euros 200-250 per subsidized computer.

Portugal is also installing wi-fi and broadband at a rapid rate. Currently, there are 1.7 mn users of broadband mobile and 1.6 mn users of fixed networks, 16% and 14% of the population respectively.

I got the population of Portugal wrong last week. It is 10.6 mn, no 8 mn. Desculpe.

Now the real PIIGS country seems to be the former Celtic Capitalist haven of Ireland, where the government is having to shell out another round of bailout money, mostly for Anglo-Irish Bank (OTC:AGIBY), a familiar if dodgy operator in the newsletter space with offerings of currency swaps for USA small investors. You used to run into them at every investors' conference peddling expensive international forex and other programs mainly making money for the peddler. Then the privatized Eircom, largest land-line operator in the country, is bust.

Ireland was more real estate dependent than even Spain and the crisis has hit hard. Then too the country's politicians were often on the take from the developers, far more blatantly than even Capitol Hill where FNMA lobbied hard.