Articles / Rubric: Global

Spain in the Pits
September 2013 | Global

Spanish industrial manufacturing hit rock bottom in 2007, when turnover fell by 30%. Last year, according to the Bank of Spain, production dropped another 8.5%, despite significant increases in exports. Over these years, all of the largest factories have been announcing massive layoffs one after the other, while some foreign companies have left the Spanish market altogether.

Since the beginning of the economic crisis, which, according to experts, Spain will be working its way out of for quite some time yet, it was only in 2010 that slightly positive indicators were registered in Spanish industry. The already weak industrial sector was paralyzed by a lack of financing: Over the past five years, more than 700,000 factory workers lost their jobs, or 27% of the total number of workers nationwide. Even now, the situation has not stabilized. In March, the Roca company announced that it would reduce staff by a quarter, and in the near future the Danone factory in Seville and the legendary Derbi in Martorelles plan to close.

In 2001, industry made up 17.4% of Spain’s GDP, but in 2011 it was down to 13%. That’s 3% less than in Italy, 9% less than in Germany, and 6% less than Europe’s average. Losses in the construction sector were partially compensated for by a revival in the service sector. Jordi Nadal, an economist and historian who has studied Spain’s industrialization, says that Spain is the one to blame: “To develop manufacturing, you need smarts, you need competent professionals. Anyone can lay bricks. Spain chose the path of least resistance by developing construction – it was the most profitable enterprise and the banks were willing to finance it. Growth in manufacturing was just 0.5% per year, but was 1.3% on average in other European countries. 10-12 years ago, industry wasn’t considered a prestigious occupation and people thought growth in the services industry was better. President Aznar even changed the name of the Ministry of Industry to the Ministry of Science and Technology, though this change was later revoked. Without manufacturing, there is no service sector.”

In today’s Spanish business environment, many are talking about innovations and introducing new technologies. The reality is that the Spanish killed off the old industry without building a new one, even though 45% of investments made in innovation are industrial in nature. “No one noticed the closing of factories.  In a state of economic euphoria during the construction boom, it was stated that ‘classical manufacturing’ was outdated and a switch to bio- and nanotechnology was needed. That’s all well and good, but such a plan requires a good industrial base which doesn’t and never did exist. To move to the next level, industry needs to develop and money needs to be invested into innovation and evolving the existing sector,” says Jorge Lasheras, former President of Yamaha Spain (the Yamaha factory closed two years ago).

The loss of the industrial sector isn’t a problem that ails only Spain. In France, for example, the most relevant ministry was renamed the Ministry of Industrial Recovery. But Spain differs from its European colleagues in that its pre-crisis level of growth in manufacturing was significantly below the European average, with an important part of the average annual growth coming from construction. Since 2007, the quantity of new construction has fallen 90%, which means a decline in demand for construction materials, furniture, and plumbing. “Industry has paid for the ‘construction bubble,’ which eventually burst and hurt the related sectors. In addition, revenues to the local authorities that came from the resale of land for the construction of houses instead of factories only fueled the process. The exit of factories to outside the cities is a natural phenomenon. They were taken away, but to nowhere: The closed factories weren’t revived in industrial zones. Spain threw itself into the service sector, where revenues from tourism grow year after year, and more and more money is invested in the sector. Yet one cannot live on tourism alone and Spanish hospitality isn’t generating any added value,” says Jordi Nadal.

Objectives set in the area of innovative development of manufacturing haven’t seen results. By 2010, the plan was to spend 2% of GDP on reviving industry, but the actual maximum spent was 1.39%. More than half of those investments were made by the private sector, in spite of a decrease in the number of players. Tax incentives and subsidies didn’t help. As former Minister of Industry Josep Pique notes, “the relationship towards the innovation-creation process has to change and people have to realize that it isn’t a waste, but an investment.” But companies that invest funds in their own future work on both domestic and foreign markets. The structure of Spanish business is such that large and medium-sized businesses that are able to invest in manufacturing make up only 4% of the total number of companies.

Jorge Lasheras confirms that companies don’t care about improving manufacturing in periods of expansion and high incomes: “It wasn’t needed, since it seemed there was enough for everyone. Labor conflicts were solved with higher wages, which took the form of additional losses. Workers were paid more than they were worth.” The head of Siemens Spain notes that other features of the market are important for international companies, such as the high cost of electricity, low-skilled workers, and a lack of flexibility from the state administration. Like the other companies, Siemens had to lay off some of its employees, but it managed to keep four factories.

Spanish manufacturer of plumbing fixtures Roca, despite laying off 700 people in 2009, decided to close 2 out of 11 factories, which will entail laying off another 500 people. “Between 2008 and 2012, losses on the domestic market were offset by Roca Group’s global sales, but in 2012, losses totaled €30 million,” said a Roca representative. Having taken a sober look at the situation, the company decided to close “non-productive” factories and build capacity in profitable enterprises so as to compensate for losses “in the near future.”

But all experts agree on one thing: Spain still has a chance to become an industrialized country. Despite businesses closing, the increase in exports because of a lack of demand on the domestic market, and the mass layoffs, recent trends give hope for the future of companies that are ready to invest in their own growth and to do smart business. In February, Nissan signed an agreement to release a new car model from its Barcelona factory, creating more than a thousand jobs. Workers’ committees even agreed that future wages will be 20% less. At the beginning of this year, the Clariant company opened a company to produce polymer products in Tarragona. Jorge Lasheras created a new company that manufactures electric motor scooters and motorcycles in Catalunya. Philips, which had closed all of its factories and officially announced its departure from Spain, launched a factory in 2013 on company land in Valladolid that was purchased two years ago. Philips is now making LED light bulbs in Spain.

Jordi Nadal says, “Now it isn’t even a question of reviving industry, but of an industrial revolution. Up until now, Spain hasn’t been able to create strong industrial manufacturing. But now we’re talking about new technologies that require a new approach. Spain needs to start over, and this time, get it right.”

Text: Valentina Rinkon

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