Country Report: Spain This Report Term Paper

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.

IV. Trade and Investment Opportunities existent on the Spanish market are considered by specialists and investors as being quite important. Due to the fact, that Spain is a member in the European Union, this thing assures the investors of the relative economic stability of the country. The main flow of investment comes from the EU countries, and is the result of Spain's struggle to attract new FDI funds in order to permit the modernization of its economy. In the 1990's it introduced new legislation to make the country more attractive to foreign investors, including tax breaks, limitation of the environmental requirements. Spain has been gradually liberalizing previous restrictions on FDI and, after Decree 664/1999, most FDI is allowed freely into the country and subject only to ex-post notification. However, investments from tax havens or directly related to national security require prior notification. There are also industry specific restrictions on FDI in air transport, radio and television, gambling, mining, hydrocarbons, pharmaceuticals, telecommunications and private security. The law allows the government to suspend the liberalization rules for certain investments for reasons of public order, security or public health.

Spain is still among the top ten worldwide destinations for FDI inflows and stock. Global capital flows of FDI grew in 2005 for the second year running, boosted to a large extent by large cross-border mergers and acquisitions.

Direct productive inflows in Spain are in line with other developed countries, growing 23.1% in gross terms and 261% in net terms.

A total of 88% of FDI inflows in Spain in 2005 were through expansion plans in the country, showing that Spain is still attractive for investors already established in the country.

FDI continues to play a major role in the Spanish economy. Market liberalization and EU accession, which began in the late 1980s, have led to macroeconomic stability, growth and restructuring of the industrial base. Despite the global FDI recession since 2000, FDI inflows to Spain have held strong in recent years -- hitting an all-time high of $44 billion in 2002.

Increasing competition, however, undermines the country's future FDI potential. Facing stiffer competition from Eastern Europe and Asia, Spain's ranking dropped for a third year in a row -- falling from 7th place in 2002 to 17th in 2005. FDI inflows to Spain declined from $29 billion in 2003 to $18 billion in 2004, with many foreign companies liquidating previous investments.

V. Conclusions

By taking into consideration all the above mentioned aspects, a possible investors willing to place his funds on the Spanish market may diminish the risk of investing by being able to prevent and expect different reactions (demographic, economic, social, and investment related reactions). Overall, we may say that Spain is a bright prospect for a possible investor, especially if we consider the tourism industry, manufacturing, food processing, and automotive industry. It is our opinion, that if the sustained level of reforms continue as in the present, Spain will be in the next few years among the top competitors at the regional and global level.

Bibliography

1) Carol Matlack and Joan Tarzian - 'Spain: Immigrants Welcome', Business Week, May 21, 2007

2) 'Plain sailing no longer', the Economist print edition, 3rd of March 2007.

3) 'Spanish property - the pain in Spain', 26th of April 2007.

4) Human Development Index report, for the year 2006

http://hdr.undp.org/hdr2006/statistics/

5) National Institute of Statistics - Spain - 2006 annual report for International Trade aspects http://www.ine.es/jaxi/menu.do?type=pcaxis&path=%2Ft09%2Fe01%2Fp01&file=inebase&L=1&divi=&his=

IMF World Economic Outlook Database…