Spain is open and seeking to attract additional foreign investment, particularly to help spur recovery from its recent economic crisis. Spain’s well-educated work force, excellent infrastructure, large domestic market, and export possibilities have attracted foreign companies in large numbers over the past three decades. Spanish law permits foreign ownership in investments up to 100 percent, and capital movements are completely liberalized. In 2015, gross new foreign direct investment reached EUR 22.695 billion, with the six main investors in Spain being the United States, Luxembourg, the Netherlands, Mexico, France, and the United Kingdom. This investment focused particularly on activities related to energy, real estate, finance and insurance, manufacturing and sales.
Spain emerged from its recession in the third quarter of 2013. Even with a high unemployment rate – 20.9 percent at the close of 2015 – and significant stocks of household and public indebtedness, the economy continued to recover in 2015 and has benefited from a resurgence in domestic consumption. The government attributes this turn-around in part to the economic reforms it implemented beginning in 2012, the largest in the country’s democratic history, which streamlined budgets and loosened labor laws to make hiring and firing easier. As part of this effort, the government sharply curbed public spending, which helped stabilize the fiscal situation. Major economic imbalances are being corrected, and competitiveness and flexibility are being restored.
The government implemented a series of labor market reforms and the restructuring of the banking system, all measures aimed at improving the efficiency in the allocation of resources, the full effects of which were visible by the end of 2014. To avoid the fragmentation of the domestic market emerging from differences of central, regional and local regulation, the 2013 Market Unity Guarantee Act was adopted. The law aims to rationalize the regulatory framework for economic activities, eliminating duplicative administrative controls by implementing a single license system that facilitates the free flow of goods and services throughout Spain. Spain has regained access to affordable financing from international financial markets, which has improved Spain’s credibility and solvency, in turn generating more investor confidence. However, the Spanish government has yet to improve significantly access to financing for small and medium-sized enterprises (SMEs), which have some difficulty accessing credit.
In implementing its fiscal consolidation program, the government has taken actions which negatively affect U.S. and other investors in the renewable energy sector on a retroactive basis. As a result, Spain is facing several international arbitration claims. Spain is a member of both the International Centre for Settlement of Investment Disputes (ICSID Convention) and the 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Spanish law protects property rights and those of intellectual property. The government has amended the Intellectual Property Act, the Civil Procedure Law, and the Penal Code to strengthen online protection. Still, internet piracy has continued to increase over the past several years.
Spain and the United States have a Friendship, Navigation and Commerce (FCN) Treaty, and a Bilateral Taxation Treaty (1990), which was subsequently amended in 2013 and went into force in December of 2014.
In 2015, Spain experienced an increase in foreign investment of 9.6 percent over the previous year. This was almost certainly driven by Spain’s significantly improved economic fundamentals; the Spanish economy was one of the fastest growing economies in the EU in 2015, largely driven by a return of consumer confidence and consumption. 84.3 percent (EUR 18.3 billion) of total foreign direct investment went to companies not listed on the stock market. By the end of 2015, productive foreign investment, which excludes Entities Holding Foreign Securities –ETVE, reached EUR 21.7 billion, 10.9 percent more than in 2014 (EUR 19.6 billion), according to data from the Foreign Investment Register of the Ministry of Economy and Competitiveness. The growth was the result of increased influx of foreign capital and less disinvestment. The total growth foreign investment in equity stakes in companies resident in Spain in 2015, including holding companies, amounted to EUR 22.7 billion (9.6 percent year—on-year), up from EUR 20.7 billion in 2014. The six main investors in Spain, defined as the countries of ultimate origin of the investment, are the United States (7.3 percent, EUR 1.581 billion), Luxembourg (16.5 percent, EUR 3.584 billion), Netherlands (12.8 percent, EUR 2.777 billion), France (9.9 percent, EUR 2.140 billion), the United Kingdom (6 percent, EUR 1.311 billion), and Mexico (4.5 percent, EUR 977 million), which represented 57 percent of total gross investment in Spain in 2015. By regions, foreign investment in Spain was highly concentrated in the autonomous communities of Madrid and Catalonia, which received EUR 14.9 billion and 68.5 percent of the total, a decrease of 1.2 percent in Madrid and an increase of 57.8 percent in Catalonia. Companies invested especially in activities related to real estate, building and infrastructures, financial services and insurance, whole and retail sale, and energy. These sectors (EUR 14.8 billion) received 65.1 percent of total gross investment (EUR 22.7 billion).
However, there is growing investor concern about political stability in Spain. So far it does not appear to have translated into a slowdown in investments. Separatist leaders of the region of Catalonia, which accounts for about 19 percent of Spain’s economic activity, have become increasingly vocal about independence and have announced plans to declare independence from Spain, a process that has no clear pathway under the Spanish constitution. Additionally, at the time of publication, the national election on December 20, 2015 has yet to yield a government. The legislature is split between four top parties, each with different policy objectives. As of April, there is no clear outcome in the government formation process, which some economists have said is leading to a domestic slowdown as households and firms are unsure about what future labor and other economic policies will be. Foreign investors so far do not appear to have slowed investments in Spain’s capital markets over this political uncertainty.
Although Spain continues to face an unemployment rate above 20 percent and significant household and public indebtedness, in the third quarter of 2013, the country emerged from recession. In 2014, the country saw a resurgence in domestic consumption, which became the driver of economic recovery. The government attributes this turn-around in part to the reform program it implemented during the past two years, the largest in the country’s democratic history. As part of this effort, the government undertook sharp public budget cuts that have helped to stabilize the fiscal situation. Major economic imbalances have been corrected, and competitiveness and flexibility are being restored. The government also implemented a series of structural reforms such as a labor market reform and the restructuring of the banking system, all measures aimed at improving the efficiency in the allocation of resources, whose full effects were visible by the end of 2014. Spain has regained access to affordable financing from international financial markets, which has improved Spain’s credibility and solvency, generating investor confidence. However, the Spanish government has yet to improve access to financing for small and medium enterprises (SMEs), which still suffer from an important credit crunch. The government took additional steps in 2014 to provide a clear, stable and fair legal, regulatory and policy framework to attract more foreign investment.