Capital - Madrid (GMT+1) Largest City - Madrid Population - 40,448,191 est. Languages - Castilian, Catalan, Portugese, Galician, Basque Demonym - Spanish, Spaniard Currency - Euro (EUR) Calling Code - +34 GDP per capita - $27,767 est. Internet TLD - .es
Spain, officially the Kingdom of Spain (Spanish: España, Reino de España), is a country located in Southern Europe, with two small exclaves in North Africa (both bordering Morocco). The mainland of Spain is bounded on the south and east by Mediterranean Sea (containing the Balearic Islands), on the north by the Bay of Biscay and on the west by the Atlantic Ocean (containing the Canary Islands off the African coast). Spain shares land borders with Portugal, France, Andorra, Gibraltar, and Morocco. It is the largest of three sovereign states that make up the Iberian Peninsula — the others being Portugal and Andorra. Spain is a democracy which is organized as a parliamentary monarchy. It is a developed country with the ninth-largest economy in the world.
Economy
The Spanish economy boomed from 1986 to 1990 averaging 5% annual growth. After a European-wide recession in the early 1990s, the Spanish economy resumed moderate growth starting in 1994. Spain's mixed capitalist economy supports a GDP that on a per capita basis is 80% that of the four leading West European economies. The center-right government of former President AZNAR successfully worked to gain admission to the first group of countries launching the European single currency (the euro) on 1 January 1999. The AZNAR administration continued to advocate liberalization, privatization, and deregulation of the economy and introduced some tax reforms to that end. Unemployment fell steadily under the AZNAR administration but remains high at 8.1%. Growth averaging 3% annually during 2003-06 was satisfactory given the background of a faltering European economy. The Socialist president, RODRIGUEZ ZAPATERO, has made mixed progress in carrying out key structural reforms, which need to be accelerated and deepened to sustain Spain's strong economic growth. Despite the economy's relative solid footing significant downside risks remain including Spain's continued loss of competitiveness, the potential for a housing market collapse, the country's changing demographic profile, and a decline in EU structural funds.
Market Overview
Spain has one of the fastest growing economies in the European Community. It enjoys a long-standing and wide-ranging bilateral relationship with the United States and has traditionally provided a healthy export market. U.S. exports to Spain in 2006 reached $7.4 billion an increase of almost 7 percent compared with 2005.
Spanish economic growth was estimated at 3.8 percent in 2006, slightly higher than that of the previous year, ranking as one of the fastest growing in the European Union (EU). Indications are that 2007 will be yet another good year (3.0-3.5 percent) for the Spanish economy.
Examples of the strong performance in some main sectors include the construction sector, second only to Germany in turnover in all of Europe. In the residential sub sector alone, building was started on over 700,000 residential units in 2006, making it the most dynamic sub sector in Europe. Spain is the seventh worldwide manufacturer of cars and first European producer of light commercial vehicles. New vehicles with complex electronic/electrical components will force auto shops to seek more modern and sophisticated equipment in order to meet consumer demand and avoid loosing clients to competitors. In the tourism sector, travel to the United States rose 16.9 percent in 2005, reaching a record high of 386,000 U.S. arrivals. Despite a slow-down in growth by most European outbound markets during 2006, Spain was once again at the top of the growth list in percentage terms as of the end of November with an increase of 10 percent. The environmental sector is calculated at $22 billion, representing 9 percent of the EU environmental market.
Major Spanish firms in the telecommunications, banking, infrastructure and energy sectors have become global leaders. The largest bank in the Euro area, Europe’s second largest phone company by market capitalization, and the majority of Europe’s top-ten construction companies are headquartered in Spain. Major procurement decisions for the largest British airports, Brazil’s major cellular operator, Mexico’s leading bank, and the Trans-Texas Corridor Project are made in Spain.
Unemployment dropped slightly to 8.15 percent in the third quarter of 2006.
On Spain’s political front, 2007 will bring several important regional and municipal elections. Terrorism, housing, immigration and employment are among the key local issues.
Despite a significant drop in investment levels, the U.S. continues to rank among the top-ten investor nations in Spain. Official statistics show that U.S. direct investment went from $10.5 billion in 2000 to $14.8 billion in 2002, $6.4 billion in 2003, $2.2 billion in 2004 and $1.8 in 2005. In 2005 the U.S. was the second largest source of FDI in Spain with 17 percent of total.
Market Challenges
The weakness of the dollar versus the euro is advantageous for U.S. exporters. Nevertheless, U.S. suppliers will continue to face stiff competition from EU countries and from Japan.
Cost, financing terms, and after-sales service are important competitive factors. European exporters provide generous financing and extensive cooperative advertising, and most European governments support exporting with trade promotion events. Japanese and Chinese companies are also emerging as formidable competitors. Although U.S. products are well respected for their high level of technology and quality, American firms sometimes fall short of their competitors in flexibility on financing, adaptation of product design to local market needs, and assistance with marketing and after-sales service.
Export-ready U.S. firms are urged to explore opportunities in Spain and throughout the euro zone.
Market Opportunities
Major U.S. exports to Spain have traditionally included aircraft and associated parts and equipment, medical products and equipment, outbound travel and tourism, software and services, electric power systems, and pollution control and water resources equipment and telecommunications equipment. Other sectors offering good prospects include defense, security equipment, e-commerce, chemicals, construction and engineering services, transportation and industrial machinery. The national water system is also slated for a major improvement, including a substantial increase in the number of desalination plants in order to meet growing water demand. This multi-billion euro program will provide opportunities for American water treatment equipment and service firms.
The rail transportation sector was liberalized in 2005. In January of that year a new law came into force separating the management of the rail infrastructure from the transportation service. Rail transport is a key objective in the 2005-2020 Strategic Infrastructure and Transport Plan, accounting for almost 50 percent of the planned Euros 248 billion investments. It is expected that by 2020 all Spanish cities will have direct access to the high-speed train network and 90 percent of the population will be within 50 kilometers of one of its stations.
Although industrial production continues to play an important role in the Spanish economy, indicators show that the service sector continues to expand, with services now accounting for 65 percent of economic activity.
Oil seeds, grains and grain by-products, and forestry products dominated U.S. agricultural exports.
The EU Ministers Council approved a reform of the Common Agricultural Policy (CAP) in June 26, 2003. CAP reform is expected to result in support programs that are more market oriented with the aim of making EU farming more competitive in world markets. The 2003 reform of the CAP introduced a new system of direct payments, under which payment of subsidies are no longer linked to production (decoupling); this system is known as Single Farm Payment. The Government of Spain (GOS) chose January 1, 2006 as its implementation date for CAP reform while Portugal implemented most of the reform during 2005.
In April 2005, the EU reformed the olive oil, tobacco, cotton and hemp programs, and has started to revise the sugar and fruit and vegetables support programs. We expect the CAP Reform to lead to a substantial crop substitution.
In January 2007, the European Commission (EC) proposed reforms to the Common Market Organisation (CMO) for fruits and vegetables, aiming to improve the competitiveness and market orientation of this sector. The EC expects this reform will be approved before the middle of 2007, so that it will come into force by 2008.
