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Spain: to invest or not in the context of the independence crisis?

The Four Towers business district skyline is seen at sunset in Madrid, Spain November 18, 2017 Paul Hanna/Reuters

Can we invest in the fourth largest economy in the euro zone, also fifth in the European Union and tenth in the OECD? Analysis by Josep-Maria Gascon

Spain does not only offer an attractive market size. It attracts not only by its competitiveness, but also because it offers a way out - and an entry point - to Latin America and North Africa.

One of the reasons for the interest of multinationals in Spain remains its economic growth, which has been above the European Union average in recent years. The European Commission believes that this year growth will continue to be strong, including in terms of job opportunities. According to a study by the Centre for International Development, Spain will also be the European country - and the fourth in the OECD - with the highest estimated annual growth until 2025.

Another asset: the presence of talent and training in Spain is also a highly appreciated challenge for investors. For example, the enrolment rate in university education is the second highest in the European Union (only exceeded by Germany).
The country is thus positioned as one of the countries in the old continent with the least problems in finding ICT specialists (only 17% of all companies looking for such profiles have difficulties in Spain to fill their vacant positions, compared to 46% on average). Labour costs in industry, construction and services, including wages and social security contributions, are also 29% lower than the euro area average.
The costs of renting offices are also lower than in other European cities. Finally, industrial costs are also lower than those of their main competitors.

 Another element that allows Spain to capture 2.1% of the stock of foreign direct investment (0.7%, well above the OECD average) is the ease of settlement in the country. The country offers a competitive tax framework, very comparable to any consolidated market, with a general corporate tax rate of 25%. When creating a company, the regulations offer several options that allow you to create an operational company in a few hours.
In addition, there are the advantages of the special regime for holding companies of foreign entities (ETVE) under which income from their subsidiaries and their transfer is exempt from tax under certain conditions.
Another factor that attracts investment is innovation capacity. Spain is in the process of going through an accelerated digitisation process, offering newly created companies - start-ups - an ecosystem of entrepreneurs, talents, investors and access to capital on such a scale that international investments already represent up to 60% of their capital.
Barcelona, for example, accounts for 34% of the total number of start-ups in Spain and 58% of investments made in the country as a whole. According to the "Startup Heatmap Europe 2018" study, the Catalan capital is the third most popular destination for entrepreneurs, after London and Berlin. This innovative capacity is based on a pioneering Patent Box system which, thanks to first-class tax incentives, promotes the creation, protection and exploitation of intangible assets, enabling an effective tax rate of 10% to be achieved.

To top it all off, investing in Spain also means investing in the quality of life. According to the OECD, the country ranks fourth in the world in terms of increased life expectancy and fourth in terms of work-life balance.


Catalonia: experts recognize and minimize the effects of the separatist challenge

In this context, Catalonia stands out as a magnet for international investment. After the months where the official discourse maintained that political uncertainty was leading to the departure of many companies, the reality is that Catalonia remains the main destination for foreign investment, as confirmed by the constant runoff with, in 2018, the arrival of large multinationals from very diverse geographical and sectoral origins (Facebook, Amazon, Satellogic, IGG, King, Siemens, Enerkem-Suez, Lidl Digital, etc).

Barcelona: why such economic conditions when the political situation has not been so tense for 40 years?
For a variety of reasons: a solid and diversified economy, local and international talent, the ecosystem of start-ups, centres and infrastructures linked to scientific research and innovation, connectivity, geostrategic location, logistics capacities and Barcelona's undeniable ability to boost companies, with world-class events such as Mobile World Capital, the IOT Solutions World Congress, the World Chemical Summit or the Smart City Expo World Congress.
This variety of reasons seems to be appreciated by international talent, since 26% of start-up workers in Catalonia are foreigners.
In this context, even as the political situation seems increasingly unstable, Catalonia and Barcelona have once again been at the top of the ranking for attracting investment to Southern Europe. According to the magazine fDi, published by the Financial Times, Catalonia is the region of the future, rewarded for being the most attractive region in Southern Europe to invest in in the years 2018 and 2019. Barcelona finally occupies first place on the continent for its strategy and policies to attract investors.
According to this publication, Catalonia's economic and human potential has led it to distinguish itself among the 450 territories and cities analysed, ahead of regions such as North Rhine-Westphalia, Scotland, Lombardy and Emilia-Romagna.
In figures, investments from the United States (24.3% of the total), Japan (11.4%), France (10%), the United Kingdom (8.6%), Switzerland (8.6%) and Germany (7.1%) are thus significant.

Proof of this is that the Catalan economy is resisting the uncertainty of independence: it is growing at 3.3%, above the Spanish average of 3.1%. The attacks in Barcelona and the events that have occurred since the referendum of October 1st have of course had an undeniable impact. However, part of this effect has been temporary and activity continues to grow faster than in the rest of the autonomous regions. In addition, Catalan exports have attracted a large part of the Spanish economy and already represent 25.3% of their total. In short, the Catalan industrial sector remains competitive.
According to BBVA's economic teams, "the composition of growth in Catalonia is dominated by industrial production and exports, which have evolved dramatically. In general, companies perceived the shock as temporary and employment did not feel any impact," reducing the unemployment rate to 10.6% in October 2018, the lowest in the country.


In short... investing in Spain?

Spain is a country which, after years of crisis marked by strong adjustments and reforms, is once again characterized by its solvency and growth potential. All these factors make Spain an ideal destination for foreign companies seeking to minimize the risks of their investments and maximize the profitability of their products through a moderate cost of resources.
Within the country, as the Financial Times itself points out, Catalonia stands out for its industrial leadership and an innovative ecosystem that facilitates international investment and, of course, sustained profitability in the medium and long term. Exactly what investors are looking for.

12/10/2018 - Any reproduction, copy, transmission or translation of this publication is prohibited.

Visitors walk past a billboard during the Mobile World Congress in Barcelona, Spain February 28, 2018 Yves Herman/Reuters