Portugal has had a small defense industry since the eighteenth century, consisting originally of a naval arsenal, a gunpowder plant, a cannon foundry, and an arms factory. Beginning in the mid-nineteenth century, the military's food, supplies and, later, fuels were provided by a government agency, the Manutenção Militar. At the beginning of the twentieth century, a factory for supplying military uniforms and equipment was established. During the 1960s, the defense industry expanded to meet the specialized requirements of the antiguerrilla operations in Africa. However, since the end of the fighting in 1974 and the subsequent scaling back of the armed forces, production capabilities have exceeded the country's needs. A modest level of sales abroad have helped the Ministry of Defense keep production lines open for artillery, mortar, and small arms ammunition.

Under Portuguese law, private companies were not permitted to engage in research, planning, testing, manufacturing or overhaul of equipment exclusively intended for military purposes. These laws have been interpreted to restrict to government-owned enterprises the production of bombs, missiles, torpedoes, mines, hand grenades, propellant powders, and other explosives. The construction of combat aircraft, helicopters, and warships was also limited to nationally owned companies, although component manufacture could be subcontracted to private firms.

In addition to Manutenção Militar, the principal government enterprises included Oficinas Gerais de Fardamento e Equipamento (OGFE) for production of uniforms and equipment Oficinas Gerais de Material de Engenharia (OGME) for the overhaul of military vehicles and Oficinas Gerais de Material Aeronautico (OGMA) for maintenance and repair of all aircraft, avionics, engines, communications, and radar equipment of the Portuguese air force. OGMA also had maintenance contracts for United States air force and navy equipment and to supply parts and components to several European aircraft manufacturers. The main ordnance factory was Industrias Nacionais de Defesa E.P. (INDEP), a producer of 60mm and 81mm mortars, artillery and mortar munitions, small arms ammunition, machine guns, and, under a German license, the Heckler and Koch 7.62mm G-3 rifle used by the Portuguese army. Arsenal do Alfeite near the Lisbon naval base had facilities for building patrol craft, auxiliary ships, and corvettes, but all of its larger modern vessels had been constructed abroad, and its activities were confined to maintenance and overhaul. Bravia, a private company, produced a range of wheeled armored personnel carriers, reconnaissance vehicles, and military trucks.

According to the ACDA, Portugal's arms exports reached a peak of US$220 million in 1986, falling off to US$40 million in 1989. In the latter year, arms exports accounted for only 0.3 percent of total Portuguese exports. In 1989 the minister of defense said that the defense industry, employing 3,000 to 4,000 people, faced contraction because fewer countries were in the market for arms.

Data as of January 1993