Main Investor Countries
Multinationals’ Importance in Exports
Sectors of Opportunity
Spain as a Hub for Latin American and European Business


Foreign direct investment (FDI) plays a prominent role in the Spanish economy. The inward FDI stock, according to the United Nations Conference on Trade and Development (UNCTAD), stood at US$443.3 billion in 2006 and was divided up among more than 11,000 foreign companies (48 of them Fortune 100 companies) employing 1.27 million people (6.6% of total jobs). Among the world’s big economies, Spain’s stock in GDP terms (36.2%) is higher than the US’s, France’s, Germany’s and Italy’s (see Figure 1). The country received US$240 billion of FDI between 1997 and 2006, 3.5% of the total for OECD countries and the eighth-largest amount (see Figure 2). Inward FDI’s importance is also clearly seen in Figure 3.

Figure 1. Inward FDI Stocks by Selected Countries (% of GDP)

199020062011 (1)

(1) Forecast by the Economist Intelligence Unit.
Source: UNCTAD.

Figure 2. Cumulative FDI Inflows, Top 10 OECD Countries, 1997-2006

CountryUS$ billion
1. US1,637.2
2. Belgium/Luxembourg1,188.7
3. UK797.2
4. France480.8
5. Germany473.2
6. Netherlands299.1
7. Canada285.3
8. Spain239.8
9. Sweden192.9
10. Mexico178.4

Source: OECD.

Figure 3. FDI Inflows in Relation to Population, GDP and Fixed Investment (1)

CountryInward FDI Stock
per Head (US$)
FDI Inflows/GDP
FDI Inflows/Fixed
Gross Investment (%)

(1) Figures for 2006.
Source: Economist Intelligence Unit.

Barred from the post-World War II Marshall Fund, which benefited almost all European countries outside the Soviet bloc, because the Franco regime that won the 1936-39 Civil War sided with Hitler and Mussolini, it was not until the 1953 Pact of Madrid, which established US bases in Spain, that the country began to receive a trickle of foreign investment and aid (nearly all of it from America)[2]. The total amount of all types of US aid in the first decade after the 1953 agreement was around US$1.5 billion (half of what Italy received from the Marshall Plan).[3] In the 1960s, the liberalisation and stabilisation measures of 1959 under an agreement with the IMF and the World Bank, which put an end to 20 years of autarky, opened the country to tourism and started to integrate the peseta into a transnational monetary system. A more liberal approach towards FDI was adopted. Complete freedom was granted for such investment as long as foreign ownership of individual enterprises did not exceed 50%. For investments involving over 50% ownership, applications had to be submitted to the cabinet for approval. FDI jumped from US$12 million in 1958 to US$86 million in 1960.

Between 1961 and 1973, when the Spanish economy grew by 7% a year in real terms –the fastest growth among member states of the OECD apart from Japan– the US was the main source of inward FDI, accounting for some 40% of the total invested (and probably more if one includes investment by US subsidiaries in third countries such as Switzerland)[4]. Tiny Switzerland was the second largest investor, followed by Germany, the UK and France. As Mauro Guillén points out, the punitive taxation of imports of industrial and consumer goods in a domestic market of considerable growth potential spurred inward FDI.[5] During the 1960s and early 1970s, annual inward FDI inflows ranged between 0.15% and 0.59% of GDP, while outward stayed under 0.1% of GDP, ie, 25 to 30 times smaller than inward FDI. At the end of 1973, according to the Commerce Ministry, one in five jobs were financed by foreign investment, much of which was in chemicals, glass, food and printing. Of the 25 main private industrial companies in 1975, only one was completely Spanish-owned (the steel plant Altos Hornos de Vizcaya). The rest, particularly automotive and petrochemical industries, were almost entirely foreign-controlled or state enterprises.

Inward FDI surged after Spain joined the European Economic Community (now EU) in 1986; at times it seemed as if the country was up for sale (in 1991 inflows represented 4.2% of GDP). Liberalisation of the economy opened up opportunities for foreign companies and inward FDI was also facilitated by regulatory changes. The motor industry (the world’s eighth-largest producer of cars and Spain’s main single export) has been entirely owned by multinationals since 1986 when Seat, founded in 1950 with Fiat assistance, was sold to Volkswagen.[6] Multinationals are also strong in cement (Portland and Lafarge Asland), electrical appliances (Sony, Philips and Electrolux), electronic components (Siemens and Robert Bosch), electronics (Philips and Honeywell), information technology (IBM and HP) and consumer products (Unilever and Procter & Gamble). It is estimated that foreign companies control about one-half of food production companies, one-third of chemical firms and two-thirds of the cement sector. Several foreign banks (Barclays, Citibank and Deutsche Bank) acquired retail banking networks from ailing Spanish banks, though their share of the total banking market remains small, and foreign firms have a not insignificant share of the insurance market (Allianz, Axa, Aviva and Generali). The French Auchan (known in Spain as Alcampo) and Carrefour groups led a revolution in Spanish retailing, opening hypermarkets on the outskirts of cities which lured customers away from traditional corner shops. Marks & Spencer’s flagship store in Madrid, opened in 1990 on a prime site and was closed in 2001 as part of a Europe-wide scaling down, despite its extraordinary success. Before its arrival, upper middle-class Spaniards would fly to London with an empty suitcase to shop in M&S and pay for the trip on what they saved. Not even the wine industry has been immune from foreign takeovers: in 1994 Allied-Lyons acquired Pedro Domecq, the leading spirits company in Spain, and in 2001 the renamed Allied Domecq bought Bodegas y Bebidas, Spain’s largest wine producer. Many of Spain’s top exporters of products are multinationals, particularly in the car industry, which accounts for more than 20% of total merchandise exports (vehicles and components).

Spain had 9,255 foreign affiliates in 2006, more than Germany and Italy (see Figure 4). UNCTAD has developed an index to gauge the relative importance of FDI in an economy, over and above investments’ share of GDP or the number of foreign affiliates. This is measured by the transnationality index of host countries, which is calculated as the average of the following four shares: FDI inflows as a percentage of gross fixed capital formation over a three-year period and FDI inward stocks as a percentage of GDP, value added of foreign affiliates as a percentage of GDP and employment of foreign affiliates as a percentage of total employment, all in the latest year available. In its 2007 World Investment Report, Spain was ranked 18th out of 31 developed countries based on the latest data. Belgium, a small economy and hence feeling the impact of FDI much more, topped the index.

Figure 4. Foreign Affiliates Based in Selected EU Countries (1)

Foreign Affiliates
France10,713 (2002)
Germany9,193 (2005)
Italy7,181 (2005)
Spain9,255 (2006)
UK13,667 (2005)

(1) Latest year is in brackets.
Source: World Investment Report 2007, UNCTAD.

Foreign companies were enticed by the size of the domestic market, its growth potential and the possibilities of using the country as a platform for exports. These factors assumed as much if not more importance than wage levels, where the gap relative to the then EU-15 average had been narrowing fast until devaluations in 1992 and 1993 began to restore competitiveness. In 1993 Spain’s hourly wages in the manufacturing sector were 93% higher than in 1985, compared with an average rise for the EU of 52%.

FDI in Spain, however, has been on a downward trend since 2002 (although the volumes have still been significant) for many reasons, including the increasing location advantages of the new EU members, particularly Hungary, Poland and the Czech Republic, for manufacturers, little scope for further investment in some sectors, the rise in Spain’s labour and other costs, insufficient reforms in the labour market and the administrative complexities of doing business in Spain (see Figure 5). In order to pro-actively counter this trend and better coordinate investment between the 17 autonomous and competing regions, INTERES Invest in Spain was created in 2005 by the central government to attract, promote and maintain foreign investment in Spain. Greater efforts are also being made by the government to narrow Spain’s wide gap with the more advanced countries in R&D. Despite the upward trend, Spain’s expenditure on R&D is still low. Even if the country manages to almost double its current spending on R&D to 2% of GDP by 2010, under the Ingenio Plan, which is very unlikely, it will be not much more than the current average of the EU-25 (see Figure 6). Spain is the only OECD country that spends more on gambling every year than on R&D. In 2005 (latest figure), Spaniards spent €29 billion on all forms of gambling, including the national lottery, or €722 per capita, according to the Munich-based Media & Entertainment Consulting Network, while R&D expenditure (private and public sector) totalled only one-third of this at around €10 billion.

Figure 5. FDI in Selected European Countries (US $bn)


Source: OECD.

Figure 6. R&D Spending (% of GDP)


Source: Eurostat.

Almost two-thirds of total FDI in Spain is in the sectors of other manufacturing, commerce, transport and communications and chemicals (see Figure 7). In common with other developed economies, inward FDI has been shifting from manufacturing to services, although so far Spain has had limited success in attracting foreign investment in the information communications and technology (ICT) sector. This is due to various factors including major shortcomings in the country’s educational system, the relatively low level of R&D spending and the lack of a strong domestic industry in these areas.

Figure 7. Stock of Productive FDI in Spain by Sector (1)

Sector% of Total
Other manufacturing industries22.6
Transport and communications14.0
Real estate and services8.7
Banking and insurance8.1
Food, beverages and tobacco5.2
Electricity, gas, water distribution/production3.3
Paper, printing and graphic arts2.3
Hotel trade1.5
Textiles and clothing1.0
Agriculture, cattle, hunting and fisheries0.2

(1) Figures at the end of 2005 and excluding Special Purpose Entities.
Source: Investment Registry.

Main Investor Countries

The main investors in Spain on the basis of the ultimate investing country as opposed to the intermediate country are the US, France, the UK and Germany; between them, they accounted for just over 60% of the total stock of productive investment of €212.1 billion at the end of 2005 (see Figure 8). The leading investor country is the US, which had ceased to be the main investor in the first years after Spain joined the EU and then came back with several particularly large investments, notably by General Electric (GE).

Figure 8. Stock of Productive FDI in Spain by Main Ultimate Investing Countries (% of total) (1)

Other countries18.8

(1) Figures at the end of 2005 and excluding Special Purpose Entities.
Source: Investment Registry.

The four leading investor countries have invested in very different sectors. While the bulk of US investment is in the industrial sector, especially the motor industry, pharmaceuticals and chemicals, the main sectors for France are commerce and transport and communications (see Figure 9). However, in recent years the presence of US companies in the services sector has been increasing steadily, particularly in information technology and consulting services. US companies account for more than one-third of total production of new passenger cars, around 15% of auto components and about 40% of the sales of pharmaceuticals. Some of these companies are among the largest in Spain and among the country’s biggest exporters (see Figure 10). They include Opel (part of General Motors) and Ford in the motor industry, IBM and Hewlett Packard Compaq in IT, General Electric (plastics), Dow Chemical and DuPont in chemicals, Alcoa in metals and Procter & Gamble in consumer products.

Figure 9. Distribution of Productive FDI Stock and Main Countries (% of Each Country’s Total) (1)

Other manufacturing231417
Banking and insurance127
Transport and communications2154
Real estate and services812
Other sectors21252227

(1) Figures at the end of 2005.
Source: Investment Registry.

Figure 10. Largest US Companies in Spain by Revenues (1)

CompanySectorEmployeesRevenues (€ million)
Opel EspañaAutomotive7,5006,765
Ford EspañaAutomotive8,0005,727
Dow Chemical IbéricaChemicals8981,348
Hewlett-PackardInformation technology2,1161,223
Atlantic CopperCapital goods5441,104
Philip Morris SpainFood and tobacco394922
Refrescos Envasados (Coca-Cola)Beverages1,041647
Esso EspañolaPetroleum156605
Ingram MicroInformation technology240574
Zardoya OtisCapital goods3,813552
Procter & Gamble EspañaConsumer products363502
Lear (MAI)Automotive3,522479
Alcoa InespalMetals1,100420
PBG Holding (Pepsi Cola)Beverages990361
Sara Lee (Southern Europe)Consumer goods280130
Johnson ControlsAutomotive400125
Lucent TechnologiesInformation technology300122
General ElectricPlastics, medical systems, finance979121

(1) 2005 figures.
Source: Fomento de la Producción.

US direct investment in Spain has averaged around 2% of the US’s total annual investment abroad since 1999 (see Figure 11). In terms of annual flows, Spain has ranked among the top eight countries in the EU receiving US FDI. At the world level, Spain ranks lower, generally among the top 20 and above China in most of the recent years (not in 2006). On a historical cost basis, US investment in Spain rose fivefold between 1994 and 2006 to US$49.4 billion, compared with a doubling in Italy to US$28.9 billion (see Figure 12). The growth in US investment in Spain has been among the fastest in Europe. Of the US$49.4 billion, US$14.2 billion is in manufacturing (US$7.8 billion in chemicals), US$6.3 billion in finance and insurance and US$19 billion in non-bank holding companies.

Figure 11. US Direct Investment Flows Abroad, 1994-2006 (US$ billion)

All countries73.2131.0134.9216.6

Note: US direct investment abroad is the ownership or control, directly or indirectly, by one US resident of 10% or more of the voting securities of an incorporated foreign business. These figures are for total capital and consist of equity capital, intercompany debt and reinvested earnings.
Source: US Bureau of Economic Analysis.

Figure 12. US Direct Investment Position Abroad on a Historical Cost Basis (US$ million)

All countries612,5922,384,004

Source: US Bureau of Economic Analysis.

US companies, in particular, have played a significant role in the internationalisation of the Spanish economy. Opel (General Motors) and Ford are regularly among the country’s top ten exporters. US firms operating in Spain account for around 9% of total exports of goods. In R&D, the role of US companies is also greater than that corresponding to their weight in the Spanish economy. The dissemination of technology and entrepreneurial know-how throughout the Spanish industrial structure has been a key contribution from US companies. This can be seen in the figures on R&D spending by American companies compared to average expenditure in Spain by all companies, and in the figures on the employment of research staff.

Ford’s first car produced in Spain, the Fiesta, came off the assembly line at Almussafes near Valencia on 18 October 1976. It was a far-sighted investment to make Spain a springboard for exporting, as it was finalised in 1973 in the final part of the Franco regime when the political climate was uncertain. The government had to pass a decree in order to let Ford invest, because at that time government approval was needed for foreign investment in the auto industry. Ford’s exports of cars rose from 4,526 units in 1976 (26% of total production) to 359,408 in 2006 (85%). During this period just over 9 million vehicles were produced and the average annual level of exports was 76%. Ford chose to manufacture its new KA model in the 1990s at this plant rather than at its facilities in Cologne, Germany, and Dagenham, UK. Albert Caspers, chairman of Ford Europe, said at the time that the plant in Spain was chosen because it has ‘one of the highest productivity levels in the world and a quality standard on a par with other European factories’. In 2003 Spain began to assemble the Mazda2, the first car to be produced in Europe by Ford’s 33%-owned Japanese affiliate Mazda, and Almussafes became the second plant in 2005, after Ford’s Saarlius factory in Germany, to manufacture the new Focus car. The highly efficient and flexible plant (the only Ford plant capable of producing four different models at the same time) escaped the round of job cuts in Europe in 2003, and in August 2007 Ford agreed with workers to produce three new models at the plant, with an annual production target of 350,000 cars. Ford, which made a loss of €12.7 billion in 2006, the largest in its history, is to invest €425 million in the plant, securing vehicle assembly until 2013. The agreement took two years to forge and was compared to the ‘pregnancy of an elephant’ by Gonzalo Pino, the UGT trade union Secretary at Almussafes. In return for guaranteeing its continued existence, workers agreed to moderate wage rises, not to press for a reduced working day and to split their holidays and adjust them more to the plant’s needs. The ‘sword’ hanging over workers was the possibility that Ford would strike a deal with the government of Romania.

Another victory for the automotive industry was the decision in 2006 by Adam Opel, part of General Motors, to build the next generation of its Meriva compact van in Spain and not in Poland, the other alternative. The decision was particularly important because some auto component firms in Spain have moved out of the country and relocated to ones with lower labour costs, particularly the Czech Republic. Delphi, the US car components manufacturer operating under bankruptcy protection since November 2005, closed its plant in Puerto Real, Cadiz in 2007.

In the chemicals sector, Dow Chemical’s Tarragona plant in Catalonia is its European production centre and hence an important link in its global supply chain. Its new €200 million plant to produce special polyethylene plastics came on stream in 2006. Exports of chemicals by US companies in Spain have more or less doubled since 1999. No other export by US companies in Spain has grown so much. Dupont has several plants in Asturias, making the region one of the most important production centres worldwide. US companies are also strong in pharmaceuticals. Eight companies, including Pfizer, have a market share of close to 30%.

In software, hardware and services, many of the big names are in Spain, including IBM (which first came to the country in 1926 and stopped manufacturing in Spain in 1995), Hewlett Packard and Microsoft. In 2005, IBM restructured its European operations and replaced Paris with two new coordination centres, one in Madrid and the other in Zurich. Madrid is responsible for business in France, Italy, Belgium, Holland, Luxembourg, Greece, Israel, Turkey and Portugal.

In the food and beverages industry, Spain has its ubiquitous McDonald’s fast-food chains, but it also has producers, such as Kellogg’s, Kraft, RJR Nabisco and Unilever Best Foods. PepsiCo’s Southern Europe Business Unit, which covers 11 countries, is in Barcelona, while Coors Brewing’s factory in Zaragoza, which it bought from Heineken in 1994, is its hub for the European market. This purchase was Coors’ first outside the US. Wrigley, the world’s largest chewing gum maker, acquired confectionary businesses that were part of Joyco, a subsidiary of the Spanish food conglomerate Agrolimen.

US companies in Spain were generally satisfied with the performance of their businesses, particularly in the sectors of food, beverages and tobacco, other services, finance and insurance, business and consulting and the information society, but less so in the car industry, and to some extent chemicals, pharmaceuticals and other manufacturing industries, according to the 2007 barometer of US companies in Spain, an annual survey conducted by the American Chamber of Commerce and the ESADE business school. The sector with the highest concentration of companies more or less pessimistic about the future of their investment plans is the car industry (33%). Only two sectors reported significant increases in their production capacity (more than 50%): pharmaceuticals and other services.

Among European countries, France, Germany and the UK are well represented in Spain. According to INTERES Invest in Spain, there were 2,185 French companies in Spain in 2006, 1,483 from Germany and 1,360 from the UK. The largest UK companies include Altadis (the product of the merger between Spain’s Tabacalera and France’s Seita), the big tobacco group which was expected to be acquired by Imperial Tobacco later this year, Vodafone, Asturiana de Zinc, Dinosol (supermarkets), Abbott Laboratories and Schweppes. Among the largest French companies are Peugeot and Renault, Cepsa (oil products), Saint-Gobain (glass), Sabeco (supermarkets), Alcampo (hypermarkets) and L’Oreal (cosmetics, perfumes). Germany’s include Seat (cars), Siemens, Robert Bosch (electrical components) and Makro (wholesale stores).

Multinationals’ Importance in Exports

Many of Spain’s top exporters are multinationals, particularly in the car industry, where all the manufacturers of vehicles are foreign. The auto components sector, however, is mainly Spanish. In 2006, exports of cars and engines accounted for 12% of the total exports of €169.8 billion and components for 6.8%. Other sectors with a strong presence of multinationals are food (13.6% of total exports) and chemicals (12.7%). There is also a foreign presence in domestic appliances and consumer electronics. Overall, foreign companies in Spain are estimated to account for around 40% of total exports. The figures for each sector other than the motor industry are not known as there is a dearth of information on this subject.

Sectors of Opportunity

The main sectors of opportunity, as opposed to sectors that are solidly established, are the newly emerging ones, particularly renewable energy, life sciences and biotechnology, information and communication technology (ICT) and water treatment and desalination.

In renewable energy, Spain was the second most attractive country in the world in 2007 –along with India and the UK– after the US, according to Ernst & Young’s Renewable Energies Attractiveness Indices (see Figure 13). Several Spanish companies are major players on the global renewable energy stage, particularly in wind power and solar energy. The government is encouraging the sector with subsidies and by 2010 aims to generate 30% of electricity from renewable sources.

Figure 13. All Renewables Index, Top Five Countries

All RenewableWind IndexOnshore WindOffshore Wind
Biomass/ Other
Infrastr. (2)
1. US (1)72738058756476
2. India64657543615565
2. Spain64647148725876
2. UK64656369505869
5. Germany63636264736160

(1) This indicates US states with Renewable Portfolio Standards and favourable renewable energy regimes.
(2) Combines with each set of technological factors to generate the individual technology indices.
Source: Ernst & Young, August 2007.

Biotechnology is also taking off in Spain, the fourth-largest EU country in terms of the production of biotech research papers, but the country is at the back of the line in terms of patents.[7] Foreign pharmaceutical firms including Merck, Lilly, Abbott, and Baxter have developed labs in Spain. The French company Sanofi-Aventis is investing nearly €8 million in a new basic-research centre outside Madrid. Growth in ICT is also well above the EU average. Spain has a cluster of companies with expertise in advanced technologies, including Telefónica, Indra, Panda Security and Hispasat, and a number of ICT multinationals are located in Spain (BT, Lucent, Motorola and Vodafone).

The seawater desalination plant at Carboneras near the Mediterranean is Europe’s biggest. Production of desalinated water in Spain doubled from 2000 to 2004, and the government predicts it will double again by 2009. The country, which has a serious water scarcity problem, is the fourth-largest user of desalination technology in the world, behind Saudi Arabia, the United Arab Emirates and Kuwait. Its more than 700 plants produce around 1.6 million cubic metres of water a day (enough for about 8 million inhabitants).

Spain as a Hub for Latin American and European Business

The cultural, historic and linguistic affinities with Latin America and Madrid’s growing importance as a crossing point between Europe and a region where there is now a significant European corporate presence make Spain a natural business hub. Madrid concentrates around 35% of total air traffic between Europe and Latin America, and there are 29 daily direct flights from Madrid to Latin American cities. Other attractions are that Santander and BBVA, the two largest Spanish banks, have Latin America’s largest franchises –well ahead of Citibank and HSBC– and are also among the biggest players in Europe, and that the Madrid Stock Exchange is unique in having a euro market for Latin American securities (Latibex). The six largest companies in the Madrid Stock Exchange’s IBEX-35 index (around 60% of capitalisation) generate a significant part of their business in Latin America.

But the results so far are modest. The number of European and Latin American companies using Spain as a hub is small. Notable examples are British Telecom and France’s Alstom, which transferred their Latin American centres from New York and Paris, respectively, to Madrid, and Mexico’s Pemex oil company, which transferred its European centre from London to Madrid. The Spanish capital is also the European base of the Corporación Andina de Fomento (Andean Development Corporation), a multilateral financial institution, but not for the Inter-American Development Bank, which remains in Paris for historical reasons.

In the view of three distinguished economists, what Spain needs in order to enhance the prospects of having a successful hub is private-sector institutions along the lines of American think tanks, such as the Institute for International Economics, that analyse Latin America.[8] “It is striking that the massive drive (for Latin America) by Spanish companies has not been accompanied by an equally forceful response in the world of knowledge”.[9]


According to the Economist Intelligence Unit (EIU), Spain will receive more inward FDI between 2007 and 2011 –an average of US$44.9 billion a year– than in the previous five years (US$26.9 billion per annum), despite rising wage and non-wage costs, less flexible labour market regulations than in other EU countries and the growing attractiveness of alternative locations.[10] This surprisingly high amount would be the ninth-largest in the world (see Figure 14). The EIU says that Spain ‘is not an obvious location for Greenfield investments except in a few niche fields’, but it is a ‘major market and many Spanish companies are profitable, making them potentially attractive targets for takeovers’.

Figure 14. FDI Inflows (2007-11 Average), Top Ten Recipient Countries

CountryUS$ bn% of World Total
1. US250.916.75
2. UK112.97.54
3. China86.85.79
4. France78.25.22
5. Belgium71.64.78
6. Germany66.04.41
7. Canada63.24.22
8. Hong Kong48.03.20
9. Spain44.92.99
10. Italy41.62.77

Source: Economist Intelligence Unit.

One key issue will be whether the government impedes such takeovers in what it considers strategic sectors, as the Socialists did in 2006 and early 2007 when they obstructed the attempt by German energy company, E.On, to acquire Endesa. The bitter two-year struggle for Endesa came to an end in October 2007 when Italy’s Enel (30% owned by the Italian state) controlled 67% of Endesa and Spain’s infrastructure company Acciona 25%.

Another important issue is to what extent foreign manufacturing companies will pull out of Spain and transfer their plants to lower-cost countries. At the moment it is a trickle and not a stampede. In the latest delocation of industrial activity, the British multinational SSL Healthcare Manufacturing announced in September that it was closing its Durex condom factory in Rubi, Catalonia in 2008 and transferring production to India and Thailand where costs are much lower. The plant in Rubi employs 230 people. Spain’s labour costs in 2005 (latest available comparative data) in the manufacturing sector were on a par with Italy’s (see Figure 15).

Figure 15. International Labour Costs

West Germany27.87 (27.60)
Finland25.98 (24.88)
France21.38 (20.74)
UK20.47 (19.89)
Ireland19.47 (18.11)
US19.27 (18.76)
Italy17.71 (18.79)
Spain17.25 (16.59)
Portugal7.37 (7.21)
Hungary4.88 (4.53)
Poland3.80 (3.29

Note: Cost per hour in 2005 in the manufacturing sector, including salaries and other expenses, such as employers’ social security contributions. 2004 figures in brackets.
Source: German Economics Institute (IWD), Cologne.

In this year’s edition of European Cities Monitor, an annual survey conducted by property consultant Cushman & Wakefield Healey & Baker, Barcelona overtook Amsterdam to break into the top five, while Madrid formed part of a leading group of seven cities. Both Spanish cities were praised for carrying out ‘strategic improvements over the past 10 years –from updating their transport infrastructure to the education of the local workforce’–. Barcelona is also the city perceived as doing the most in Europe to improve itself as a business location, followed by Prague and Madrid.

In another survey, drawn up by Ernst & Young Lawyers, Spain was cited as one of the countries with the lowest tax burden for foreign executives. Spain has had a special regime since 2004 which benefits foreign executives who work in the country and make it their tax residence provided they meet certain requirements including not having been a tax resident in Spain for 10 years prior to entry, and the place of work is in Spain and benefits a Spanish company. Those qualifying pay a 24% general rate on income generated in Spain, substantially lower than what other tax payers pay on their worldwide income (top rate of 43%). This regime can be adopted for up to six years.

Although Spain remains relatively well placed internationally in terms of a business friendly environment, the fact is that the country is falling behind because of the lack of reforms, a certain fatigue in policymakers and excessive complacency about past achievements. The EIU ranked Spain’s overall business environment 22nd out of 82 countries for 2007-11, the same position as in 2002-06 (see Figure 16). There are two significant changes, however, in Spain’s position in the segments that comprise this overall ranking: the country’s macroeconomic environment dropped from 39th to 54th, but in market opportunities it rose from 17th to 11th place. The economy, after an extraordinary decade of growth, will slow down over the next five years.

Figure 16. Business Environment Rankings

Score (out of 10)Rank (out of 82)
Overall scores and ranks7.47.822222
Political environment7.87.81921
Macroeconomic environment7.57.23954
Market opportunities7.17.71711
Policy towards priv. enterp. & compet.7.57.82124
Policy towards foreign investment8.28.21720
Foreign trade & exchange controls8.79.11514
Labour market6.57.23828

Source: Economist Intelligence Unit.

Spain’s seemingly bright inward FDI prospects and its business environment ranking, both on the basis of EIU reports, are at considerable variance with the country’s low ranking in the Ease of Doing Business Index, an annual report published by the World Bank. Spain was ranked 38th out of 178 countries in 2007 (39th in 2006) and was placed very low (118th) in the ranking for starting a business (see Figures 17 and 18). It takes 47 days in Spain to satisfy the authorities that you are fit to establish and register a legal business compared with seven in France, 18 in Germany and 13 in the UK. However, this is nothing compared with the 152 days in Brazil.

Figure 17. Ease of Doing Business Overall Index, Selected Rankings (1)

1. Singapore8. Ireland33. Chile83. China
2. New Zealand12. Japan38. Spain106. Russia
3. US20. Germany44. Mexico122. Brazil
6. UK31. France53. Italy178. Dem. Rep. Congo

(1) Out of 178 countries.
Source: Doing Business 2008, World Bank.

Figure 18. Ease of Doing Business Index: Spain

Ease of…2007 Rank (1)2006 Rank (2)Change in Rank
Doing business (overall)3839-1
Starting a business118108-10
Dealing with licences4648+2
Employing workers154152-2
Registering property4241-1
Getting credit1312-1
Protecting investors8381-2
Paying taxes9391-2
Trading across borders4743-4
Enforcing contracts5559+4
Closing a business1715-2

(1) Out of 178 countries. (2) Out of 175 countries.
Source: Doing Business 2008, World Bank.

Spain’s employment protection is one of the highest in the OECD. For example, the average number of weeks of wages for someone on a permanent contract who is fired is 56 in Spain, higher than France (32), Italy (2) and the UK (22), but lower than Germany (69, see Figure 19).

Figure 19. Employing Workers

Indicator (1)SpainFranceGermanyItalyUK
Difficulty of Hiring Index7867333311
Rigidity of Hours Index606060400
Difficulty of Firing Index3040404010
Rigidity of Employment Index565644387
Non-wage labour cost (% of salary)3347193711
Firing Costs (weeks of wages)563269222

(1) Each index assigns values between 0 and 100, with higher values representing more rigid regulations. The Rigidity of Employment Index is an average of the three indices.
Source: Doing Business 2008, World Bank.

INTERES, the central government’s inward foreign investment agency, takes issue with the World Bank’s rankings. It points out that the Doing Business overall ranking is based on 38 indicators compared with the 323 used by the Swiss business school IMD in its equally well-known World Competitiveness Yearbook (which ranked Spain 30th out of 55 countries in 2007). According to the Doing Business ranking, it is easier to do business in Georgia than in Germany, France, the Netherlands and Spain, something that is hard to believe. The ranking does not take into account such important variables for investors as the size of the domestic market, the proximity to other markets or macroeconomic stability. Nevertheless, it does expose Spain’s weak areas which need to be improved.

William Chislett

Author of three books for the Elcano Royal Institute and former correspondent of The Times in Madrid (1975-78) and the Financial Times in Mexico (1978-84)


Chislett, William (2002), The Internationalisation of the Spanish Economy, Elcano Royal Institute, Madrid, (

Chislett, William (2005), Spain and the United States: The Quest for Mutual Rediscovery, Elcano Royal Institute, Madrid, (

Economist Intelligence Unit (2007), World Investment Prospects to 2011, London, EIU.

Cynthia Graber (2007), ‘Spain’s Biotech Revolution’, Technology Review, 4 May, (

Guillén, Mauro (2005), The Rise of Spanish Multinationals, Cambridge University Press, Cambridge.

Guillén, Mauro, Emilio Ontiveros & Javier Santiso, ‘España: un “hub” latinoamericano incompleto’, El País, 14/XI/2006.

UNCTAD, World Investment Report 2007 and other years.

Wright, Alison (1976), The Spanish Economy 1959-1976, Macmillan, London.

[1] This paper draws on information from a book on Spain by William Chislett to be published by Telefónica in 2008.

[2] Spain’s missing out on the Marshall Plan was amusingly satirised in Luis García Berlanga’s famous 1953 film Bienvenido Mr. Marshall, whose subtleties escaped Franco’s censors. One of the scenes shows a large American car carrying a Mr Marshall speeding through a village and passing crowds, leaving nothing in its trail but dust and dashed hopes. The Allied powers also imposed a trade embargo that remained in place until the late 1940s.

[3] Eximbank provided a US$62.5 million credit line between 1953 and 1959 which was used to purchase food, coal, cotton, machinery and other capital goods. Economic aid ceased as of 1963 and funds were restricted to military assistance. There were major differences between Spain’s US aid and the Marshall Plan assistance. While Spain’s aid was spread out over 14 years, the Marshall Plan lasted four years. Much of Spain’s aid was given in the form of concessional loans, while the bulk of the Marshall Plan consisted of grants.

[4] See p. 36 of Wright (1976).

[5] See p. 9-11 of Guillén (2005).

[6] The first car under the SEAT logo appeared in 1982 (the SEAT Ronda) and sparked a lawsuit from Fiat which claimed that it was too similar to its Ritmo model. The then president of SEAT, Juan Miguel Antoñanzas, showed a Ronda to the press with all the parts different from the Ritmo painted in bright yellow, to highlight the differences. This ended the dispute. Rumour at the time had it that Fiat was angry because the Ronda restyling was in fact too close to their own planned restyling for the Fiat Ritmo, which they had to scrap.

[7] See Graber (2007).

[8] See Guillén, Ontiveros & Santiso (2006).

[9] Ibid.

[10] See Economist Intelligence Unit (2007). Written with the Columbia Program on International Investment.

Written by William Chislett

William Chislett (Oxford, 1951) is Emeritus Senior Research Fellow at the Elcano Royal Institute. He covered Spain’s transition to democracy for The Times of London between 1975 and 1978. He was then based in Mexico City for the Financial Times between 1978 and 1984. He returned to Madrid on a permanent basis in 1986 and since then, among other things, has […]