Spain's recovery is gathering pace after a double-dip recession that ended last year, and FDI is one of the key factors underpinning a sustainable economic upturn. Economy minister Luis de Guindos is forecasting GDP growth of 1.2% in 2014 and 1.8% in 2015, though the country's unemployment is set to remain above 20%. After more than five years in the doldrums, Spanish FDI is surging ahead of the macro figures. According to Ministry of Commerce data, net FDI coming into Spain was nearly €12bn, or $16bn, in 2013, up 36% compared with the previous year. However, greenfield investment monitor fDi Markets recorded a figure closer to $12bn.
Government spending cuts and tax increases, as well as wide-ranging economic reforms, have helped restore investment in Spain to the point where last year, according to the United Nations Conference on Trade and Development, Spain ranked 13th for FDI inflows of the top 20 host economies worldwide, ahead of Germany and India. Declines in labour costs have also helped to boost competitiveness compared with other European countries, conveying the message that rigid regulations are not as strong as they were in the past.
'Big four' sectors
Foreign investment in Spain in 2013 was concentrated primarily in four sectors: financial services, manufacturing, property and construction, with the Madrid region and Catalonia accounting for 76.8% of total inflows.
Some of the big-ticket operations were telecoms giant Vodafone’s €7.2bn acquisition of Spanish cable operator Grupo Corporativo Ono, and pharmaceutical company Bayer’s decision to make its plant in northern Spain the production centre for its entire global aspirin output. “Spain’s qualified and flexible labour force, its competitive production costs and its strategic location make it very attractive,” says Manuel Fernández Ortega, the manager of Bayer’s Asturias plant.
In the automotive sector, GM invested €165m in its Figuerelas plant in 2013 and plans to spend another €210m this year, while Renault will increase its Valladolid factory workforce by 250 this year.
“Foreign investment plays a crucial role in the pace and sustainability of Spain’s economic recovery,” says secretary of state for commerce Jaime García-Legaz. “Without FDI, it would be impossible to understand the country’s qualitative and quantitative changes over the past 30 years.”
Mr García-Legaz says that it is important to attract FDI to several key sectors to consolidate Spain’s new growth model. “In the past our economy was heavily dependent on property and construction,” he says. “We are looking to promote an export model based on sectors such as industrial goods, including medical products, the chemical industry, agribusiness and the automotive sector. Every auto company in Spain is foreign owned and 85% of their production is exported.”
According to Mr García-Legaz, wage moderation and increased productivity have helped to boost investor activity. Investors are also looking increasingly at Spain as a springboard to Latin American markets. This works both ways and has also brought foreign capital into the financial services sector. For instance, in November 2013 Venezuela’s Banesco paid €1bn to take over Spanish bank NovaCaixa Galicia.
“We believe 2014 is going to be a good year for foreign investment in Spain,” says Mr García-Legaz. “FDI grew by €10bn in the first four months, which is an encouraging sign compared with only €16bn in all of 2013. Moreover, the government has plans for major privatisations for this year, which should stimulate investor interest from abroad.” The biggest operation announced so far is the sale of a 49% stake in Spanish airport operator AENA, a company valued at €16bn. This is Spain’s largest single privatisation in 16 years.