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Successfully investing in Spain

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​​​​​​​last updated on 7 June 2024 | reading time approx. 6 minutes

 

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How do you assess the current economic situation in Spain?

Spain recovered economically much later than other countries after the coronavirus crisis. However, it was already evident in the final months of 2022 that this recovery was stronger than expected. With GDP growth of 2.5 percent in 2023, Spain was among the leaders in the EU, after 2020 and 2021 which were characterised by the normalisation of the economy following the pandemic. A comparison of the first quarter of 2024 with the same period in 2023 shows growth in Spain's GDP of 0.7 percent[1​]​. Madrid leads the autonomous regions in Spain with a 19.4percent share of the national PIB. (2022). 
  
Spain has a lower inflation rate than many other EU countries. In an annual comparison, this was 3.3 percent in April 2024​[2​].  The government has tried to keep the cost of living low by implementing various measures, some of which are still in force. This has meant that many Spaniards have been able to spend more without having to go into debt. Measures included capping the price of gas for electricity generation, subsidising the price of electricity, cutting VAT on some basic foodstuffs and reduced prices for local transport. The current Spanish government plans to increase lower incomes in the future and further increase the minimum wage, which currently stands at 1,134 euro per month after a 5 percentincrease in January 2024. (14 payments).
  
One of the reasons for the good economic situation can be found in the EU's Covid recovery fund. Spain has received 164 billion euros in aid from the EU's Next Generation Programme. The country has been able to apply and utilise these funds very well so far.  
  
Another reason for the positive development in Spain is certainly due in large part to the sharp fall in energy costs, especially as Spain has never been dependent on Russian natural gas.
  
Unfortunately, Spain's dependence on tourism, which accounts for 12.8 percent of PIB (2023), harbours certain risks, even if an end to the tourism boom is not yet in sight. Drought and water shortages in some areas of Spain are causing problems for tourism, particularly for hoteliers, but also for agriculture. At the same time, employees in the tourism industry are often poorly paid. 
  
Spain's per capita income and productivity in particular are criticised. 
  
However, none of this is a reason for the most important reference institutions to lower their forecasts for Spain: the OECE is predicting economic growth of 1.5 percent for Spain in 2024, while the International Monetary Fund is forecasting growth of 2 percent for Spain in 2024. 
   

How would you describe the investment climate in Spain? Which sectors offer the greates potential?

One of the advantages of investing in Spain is the country's very well-developed infrastructure. This infrastructure and the many available open spaces have led to important investments, particularly in solar plants and wind farms. Renewable energies will continue to play a growing role in the future, partly in view of the ongoing war between Russia and Ukraine and Europe's associated desire for independence from foreign energy sources. However, the current drop in prices on the wholesale electricity market is causing problems for renewable energy companies. 
  
The pandemic has also proved to be a catalyst for general and industrial digitalisation in Spain. Topics such as smart cities and micro-mobility continue to open up interesting opportunities, as does the IT and communi­cations sector, as Spain has well-trained specialists and wage levels are much lower than in Germany, for example. IT and communications companies are also open to investment from abroad.
  
The Next Generation EU funds will continue to provide funding for sustainable projects and innovations. Apart from this, depending on the region and the size of the investing company, regional funding provides support in various sparsely populated and peripheral areas, with some regions focusing particularly on labour-intensive companies. 
  
The current low energy prices (Spain and Portugal as the common Iberian electricity market are currently Europe's most favourable electricity markets) could lead to further investments in production sites in the medium term. 
   

What challenges do German companies face during their business ventures into Spain?

The decisive factors for success or failure are above all the careful selection of employees and, more specifically, the managers of the Spanish branches. In particular, monitoring the branches in Spain plays an important role in avoiding unpleasant surprises that only become apparent after a time lag. If you are focussing on Spain as a sales market, it makes sense to bring local expertise into the teams. 
    
In terms of foreign language skills, Spaniards have improved significantly in recent years, but are not yet on a par with other European countries. 
  
Business relationships in Spain are generally more personal and social in nature.
  
It is advisable to be informed about the labour law regulations for the different sectors. In many companies, an equal opportunities plan (Plan de Igualdad), a protocol to prevent risks in the workplace (Prevención de Riesgos laborales), a protocol to prevent bullying/sexual harassment in the workplace and a remuneration register must be drawn up in general or once a specific number of employees is reached. Working hours must also be recorded and a whistleblowing channel introduced.  

In general, the maximum working time in Spain is 40 hours per week with an upper limit of 80 hours of overtime per year and a minimum weekly rest period of one and a half uninterrupted days. 
  
Further challenges arise from political developments in the country. The last early elections in 2023 led to a coalition government made up of socialists (PSOE), the left-wing alliance SUMAR, the Catalan parties ERC and JUNTS, both of which are seeking independence for Catalonia, as well as PNV, the Basque nationalist party and BILDU, a Basque socialist electoral alliance that is said to be close to the formerly active terrorist left-wing nationalist ETA environment. Among other things, the current President Pedro Sánchez had to promise an amnesty for convicted separatists in return for co-operation with the JUNTS party, contrary to previous statements. 
  
The current government's programme includes a reduction in the working week from 40 to 37.5 hours with full wage compensation and a further increase in the minimum wage. 
   

What opportunities are there for German companies in Spain, particularly in view of the lower electricity costs compared to Germany?​

There are current and future opportunities for electricity-intensive companies in Spain if they can relocate their production to the Iberian Peninsula, as trading prices for electricity have fallen sharply compared to other European countries. The reason for this is the so-called cannibalism effect of renewable energies, which results from the merit order pricing principle in the electricity market. During the hours of sunshine in March and April this year, electricity was available on the Spanish electricity exchange at zero price. Many renewable energy producers are currently looking for buyers of their electricity at 30-35 €/MWh, prices that are (still) unthinkable in Germany. The optimal scenario would be a production facility that is connected to PV and/or wind farms via direct power lines and can thus produce its own electricity without electricity transmission costs. Combined with batteries or other storage methods, a 24/7 power supply with the cheapest electricity can be guaranteed. 
   

How do you see Spain developing?

Spain's economic output plummeted during the pandemic, but the recovery has been clearly noticeable in recent years.  
  
One positive development is that tourism is no longer the only sector boosting the economy, but that exports of goods and services, such as engineering services, have also risen sharply. The reason given for this is the improved competitiveness of Spanish companies, which is partly due to the good training of the workforce and certainly also to the lower energy costs. 
  
One problem in Spain is certainly the unemployment figures, seasonal contracts and temporary contracts. Many young people are unable to afford their own homes due to the low per capita income in the major urban centres. Public debt in Spain is over 100 percent of GDP. Due to this high level of public and private debt, Spain is particularly exposed to the ECB's interest rate policy. However, the positive effects of the massive "Next Generation" fund approved by the EU and similar European aid packages will continue to be felt in the Spanish economy in the coming years. 
  
Spain will therefore develop positively, particularly in the short and medium term. The policies of the current left-wing government and the course it sets will play a decisive role in further economic development.  ​

[1] Source: Instituto Nacional de Estadísticas, INE
[2] Source: INE​

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