SPAIN & THE FDI: From net borrower to net creditor Matilde Madrid ( [email_address] ) Vienna, March 7th 2008
SPAIN & THE FDI: From net borrower to net creditor Spanish position in the World’s FDI
Employment and production
1. Spanish position in the World’s FDI Attractive host (late 80’s, early 90’s) More competition in 00’s (emerging countries, EU enlargement) FDI inflows => Outward looking orientation of the Spanish economy 2006: Outward FDI stock (41% of Spanish GDP)
2001-2006: 6% of total world outflows
2. Inward FDI (I): Factors Why did Spain attract FDI in the late 80’s/early 90’s? EC accession, big market, link to Latin America, lower Unit Labour Cost Why does not Spain attract so much investment today?
Higher competition in world’s FDI (emerging economies) and in the European Union (EU enlargement)
EMPLOYMENT The inward stock of FDI in 2005 generates 1,3 million jobs (direct employment) in Spain, which mean 7% of the total employment. 2. Inward FDI (II): Effects GROSS FIXED CAPITAL FORMATION Inward FDI has traditionally contributed to gross fixed capital formation. In 2000 the FDI inflows meant around 25% of the total Gross fixed capital formation.
2. Inward FDI (III): Effects Traditionally key to finance Spanish current account (30-40% of total capital inflows) not so much today (around 10%) 2. Inward FDI (III): Effects
To sum up, these inflows had an impact on domestic economy, fostering investment, growth and productivity and creating a more dynamic market, less home-biased. These fundamentals paved the way for a further phase in the internationalisation process: the outward FDI.
3. Outward FDI (I): Factors Why is Spain a big player in world’s FDI since the mid 90’s? Inward FDI => Outward FDI macroeconomic stability, €
Liberalisation/privatisation internal market and abroad
Outward FDI (II): by COUNTRY First wave of Spanish foreign investments: Latin America (97-00) Privatisation/ liberalisation in utilities, energy, financial and telecommunication services The second wave of Spanish investments: Europe Source: Own calculation based on Bank of Spain data Source: Own calculation based on Bank of Spain data
Macroeconomic and institutional instability in Latin America
3. Outward FDI (III): Effects (local economy) Manufacturing sectors which invest abroad don’t worsen their local indicators: Chemicals, food industries, non metallic minerals, basic metals, machinery… Manufacturing sectors which perform worse aren’t affected by capital outflows:
Textiles, wearing apparel, footwear, communications equipment, computing mach...
3. Outward FDI (IV): Effects (local economy) Domestic indicators do not resent in services, though sizeable capital outflows: Transport and telecommunications, real state and business services
FDI in services ≠ FDI in manufactures
3. Outward FDI (V) : Effects (service trade) Why does FDI boost service exports? Intrafirm trade Market share: the best indicator for competitiveness Service exports: increasing a lot from mid 90’s
Spain is strengthening its role in world’s FDI (4%) and trade in services (3%)
3. Outward FDI (VI) : Effects (service trade) In which countries is Spain bolstering its competitiveness? Especially in UK, the Spanish FDI main host recently. In which sectors is Spain improving its competitiveness? Business services, royalties, computer & information services
Spanish is still very far from leaders in FDI and service trade (USA, UK)
4. Concluding remarks Spain: from net FDI borrower to net FDI creditor Competitiveness, exports, productivity Trade in merchandise and services? Positive effects Does outward FDI have costs in employment? FDI inflows can create more outward-oriented economies FDI outflows may contribute to higher exports. FDI outflows do not imply job losses Policies for companies investing abroad.
Pro-active policy for FDI In Spain: INTERES Agency ( Invest in Spain)
The Spanish outward FDI: by SECTOR Energy industries lost importance during the second expansion In favour of construction, real-state and business activities. Source: Own calculation based on RIE data (EUR milions) Net investment including SPE
Future: high expectations in the renewable energy sector.
The Spanish service exports: by COUNTRY Are service exports linked to outward FDI? Yes Europe: main service exports destination ( ~ outward FDI) Latin America: sizeable share (close to 10%) From 99-00 to 04-06: Europe increases its weight in service exports to the detriment of Latin America and North America Are service exports linked to outward FDI? Yes but… There more factors which hold sway over service exports (growth…) Source: Own calculation based on EUROSTAT data
Changes in service export patterns are smoother than changes in FDI patterns
Services involved in intrafirm trade Main sectors involved in intrafirm trade? Royalties, business services, R&D… United States: big surplus in intrafirm trade: Specially in royalties, R&D, business services Deficit in consulting and computer services Spanish competitiveness is very far from USA in services related to intrafirm transactions (Graph X) Surplus in computer services
High weight in business services