Country Report: Spain This Report

Country Report: Spain

This report will describe Spain's international competitiveness level according to different criterions which will be presented above. First of all, Spain is a member country of the European Union - one of the promoters of free trade and capital movements around the world. The macroeconomic objective of Spain is to converge to the high levels of economic, social and commercial development of EU 25 members in (2004, before the accession of Romania and Bulgaria). Why selecting Spain for the purpose of this report - because it has an important history in trade, due to its favorable natural conditions and geographic location - the intersection of various commercial axes, to the Atlantic Ocean and EU. Another reason would be that due to increasing trend in its economy, it could play an important part in the regional and world marketplace for the years to come. Tourism is an important sector for the economic development of the country, having important seaside resorts known all over the world for their luxurious surroundings and qualitative hotel and service levels. Next, we shall discuss issues like Spain's demographics, political and economical environment and also Trade and Investment opportunities. In the end, the conclusions of the current report will be presented in a clear and concise form.

I. Country Demographic Description -- Market Size

Having a population of 44.1 million in 2005, following a demographic increase of approximately 9% since 2000, Spain registered an important flow of migration. Legal and illegal immigrants arrived by sea to Spain in order to live a better life and at the level of 2004, 700.000 illegal immigrants were granted amnesty to Spain. This flow of immigration has two main effects: reducing the unemployment level and increasing the overall productivity of the country. The profound crisis from the labor market registered in the 1990s, where staff for key positions requiring a specialized field of expertise was need. Also the population growth was positively influenced by the migration process, leading to an historical increase in the number of Spanish inhabitants. Besides the social tensions existing on ethnic criterions in the country, the immigrants were accused of being guilty for diminishing the average nominal wage, by enhancing the labor supply existent on the market.

Age distribution is best shown by Spain's population pyramid (Figure 1), which indicates that over 67.8% of the population is situated in the age interval of 15-64 years, meaning that the active population can sustain the ageing one, from the point-of-view of pension, health and insurance premiums and taxes, as well as any other social contributions. The gender ration is given by 48% Males and 52% Females, so the Spanish demographics could not be categorized by gender imbalances. As it was reported in the introduction of the document, the population growth index registered a period of rapid surge, culminating with the rate of 2.1% in 2004. This upward trend is continuing also in current times, phenomena which is encouraged and supported by the migration and above breakeven point natural growth rate.

Figure.1

Population density is 88.39 inhabitants/km2 (106th place in the world), lower than the EU average, while urbanization reaches important values in 2005-76.7%. The urbanization process started a decade ago, when many peoples from rural areas were attracted by the big cities and their surrounding areas (metropolitan area) due to booming industry, economy in products and services, better health and sanitarian facilities. The highest level of population concentration is reached in the outskirts of the capital Madrid and on the coast line. Spain's life expectancy at birth, according to Human Development Index published in 2004 and which takes into account different aspects regarding the quality of life (longevity, knowledge and standard of living) is 74.3 years, and. The minimum age of education is 16 years making Spain rank 19th place the HDI chart. Spain has maintained its position (HDI 19) during the period 1975-2005, but he indicator has acknowledged a upward trend growing from 0.844 to 0.938 in the present, showing recovery signs in the economic and social aspects of Spain.

Distinct ethnic groups include among the Spanish population the Basques, Catalans while the religion in the country is predominantly Roman Catholic. The official languages are: Spanish (official) 74%, Catalan-Valenciana 17%, Galician 7%, Basque 2%. The literacy level, according to OECD statistics, is 95%, meaning that a great extent of the population is able to read and understand written texts or signs. This aspect is very important for marketers who need to decide how to transmit the message about their products - through visual means that do not require reading (Television, Radio) or written sources (Newspapers, Internet). The Health system is very well organized, being comprised of both public and private hospitals offering proper aid services to patients in need.

II. The Political Environment is crucial for the long-term development of a particular country because at the political level are taken all the major decisions within a state. For example, the taxation level established by the Ministry of Finance from Spain influences the occurrence of investment, economic growth or economic decline, affecting in equal terms the level of foreign direct investments or portfolio investments in one country.

From the political point-of-view, Spain is a constitutional monarchy ruled by King Juan Carlos, since 22nd of November 1975. The actual Constitution is in force since 1978, setting the main rights and obligations for each Spanish citizen. The political system is divided into three sections: executive, legislative and judicial force. The president of government is nominated by monarch, being subject to the approval of the democratically elected Congress of Deputies. The legislative force has two means of action - bicameral Cortes: a 350-seat Congress of Deputies (elected by the d'Hondt system of proportional representation) and a Senate. Four senators are elected in each of 47 peninsular provinces, 16 are elected from the three island provinces, and Ceuta and Melilla elect two each such senators; total amount of 208 senators. The parliaments of the 17 autonomous regions also elect one senator as well as one additional senator for every 1 million inhabitants within their territory (about 20 senators). Judicial force is mainly regulated by the Constitutional Tribunal, which conducts its jurisdiction over constitutional issues. Supreme Tribunal concludes the judicial system, comprising territorial, provincial, regional, and municipal courts. The Spanish political system contains three important political parties: Spanish Socialist Workers Party (PSOE), Popular Party (PP), and the United Left (IU) coalition. Key regional parties are the Convergence and Union (CIU) in Catalonia and the Basque Nationalist Party (PNV) in the Basque country.

The democracy state of affairs is still at an incipient level in Spain, following the dictatorship and the military conflicts in the past. Political and economical stability is ensured by the institutions of the monarchy, government and constitution, permitting the development of individual and corporate persons. A special attention should be paid to the educational system which changed dramatically three times in a relatively short period (1991-2001) leading to confusion among students and academic professors. This thing was transposed into the business environment, who at a certain moment in time at the mid 1990s, was confronted with a shortage of well prepared labor force. For the moment, the solution came from the immigrants, but this can not be a sure answer for the long-term issue.

The political risk, meaning the risk of incurring a loss when investing in a given country caused by changes in a country's political structure (the definition given by the Kambayashi, Satoshi, Economist publication), is moderate in this country. As it was mentioned before, the stability in the political, economical and social aspects of the country offer investors the certainty that laws which directly or indirectly affect them, will not change to a great extent. Stability is very important because investors need to plan their activities, both on the short- and long-term. And if legislation is fluctuating, their chosen strategies may not have the desired impact. The ETA terrorist movement can impact on the stability and the tranquility within the country, especially in the regions with ethnic tensions (Catalonia, the country of the Basks). Spain is a full member of the European Union, adopting the main Community policy (common international trade policy, common strategy policy, monetary and market-based union).

III. Economic Environment has registered a very dynamic performance since the integration in the European Union in the 1986. Taking part even from the launch of EURO in the monetary union (2002), Spain ranks the 5th position in EU, exporting motor vehicles (5th largest producer in the world), machinery, base metals, plastics, agricultural products and textiles. Among its major imports, we can mention machinery, electrical equipment, motor vehicles, chemical products, mineral fuels and petroleum products, and base metals and their complementary products. The ever increasing trade deficit of Spain is a current reality, the level of the imports surpassing the level of the exports by more than 100 bn dollars, representing 8.7% of the GDP. As it could be expected, EU, alongside United States of America, OPEC countries, Latin America and Japan are its most important trading partners.

An interesting trend has been registered in the service industry, especially in the field of tourism. One of the main engines of Spanish economy in the past, now tourism in this country faces fierce competition from Eastern Europe countries. The beautiful resorts in Palma del Majorca and Costa Brava must compete with low cost sea side resort, which offer similar services at incredibly low prices. Another field which needs reforms and reformulation policy is the agricultural and fishery one, which accounts only 4.1% out of GDP, although the important political forces attached to this sensible sector.

In order to be able to face the challenges and the opportunities on the regional and global market, Spain needs reforms in most fields of activity. Unemployment level is one of the highest in EU 9.2% at the end of 2005, while the rate of inflation was around 3.4 per cent in 2005, which is also higher than the EU average.

The Gross Domestic Product (GDP), computed at current prices, and PPP (purchasing power parity) for 2005 was $1.125 billion with a real growth rate of 3.4% as regards to 849.3billions in 2000. GDP per capita in 2005 was approximately $25,500. The GDP dollar estimates presented here are calculated at market or government official exchange rates. The GDP values in the national currency (Euro) show that the GDP computed for constant and current prices had the same value in 2000 (630.263 billions) while in 2005 the GDP (constant) was 735.924 billions and the GDP (current) 904.323 billions in 2005. The GDP/capita at national currency had the same value for 2000 computed for constant and current prices, 15,708.792 Euros, while in 2005 in GDP in constant prices was 17,785.003 and the one in current prices was 21,854.677. The implied PPP conversion rate was in 2000, 0.743 and in 2005, 0.818.

The social inequality has improved in the last decades, but is still at important quotas. This means that a big part of country's wealth is concentrated in the hands of a very small percentage out of the total population. These social and economic phenomena enable social tensions among different groups of individuals, but reduce on the whole the purchasing power of average individual. Also, companies may want to target the prosperous group of Spanish people with premium products at accordingly settled prices in order to rip off the benefits of the current situation.

If we discuss about the structure of the GDP, agriculture accounts for around 4% of GDP, mainly in the form of wine, olives, fruit, vegetables and rice. Industry accounts for 29.5% of GDP with the main industries being processed foods, textiles, footwear, petrochemicals, steel, automobiles, consumer goods and electronics.

Spain's fishing fleet, the largest in the EU, is another important contributor. Services make up the remaining 66.5% with retailing, tourism, banking and telecommunications all making a crucial contribution to economic activity.

Tourism is of particular importance with over 50 million visitors a year injecting some $25 billion into the economy. The purchasing power is influenced only to a small amount by the inflation rate, as in the last 5 years, due to community programs of monetary stabilization, as the inflation is around 3.4%. per annum. Even if Spain's inflation registers a moderate depreciation, it continues to be the highest among the countries adopting the EURO currency.