The flows of productive Foreign Direct Investment received by Spain reached their historical maximum in 2018, both in gross and net terms, culminating an ascending series that began in 2013. This positive evolution contrasts with the global trend, which has witnessed a drastic reduction in flows since 2015. This has contributed to placing Spain among the main recipients of investment worldwide in 2018, the sixth according to data provided by UNCTAD.
Madrid, with more than 85% of the investment received in Spain last year and 57% since 2013, according to the Investment Registry, accounts for the lion’s share of the national figures. The region has received over 10 billion euros over five consecutive years, its historical average since 1993, while investments registered last year topped 39,925 million, a historical record, after an annual increase of more than 125%.
What lies behind these figures?
The volatility of the figures
Foreign investment series tend to be very volatile: a few large-scale operations can have a significant impact on annual results, both nationally and regionally. This is especially true in the case of Madrid, since many national companies have their headquarters there and any corporate operation involving them of a certain scale has a significant impact on the global investment figures.
If we analyze the historical pattern, all the years in which the 15 billion investment threshold has been surpassed there have been large-scale transnational corporate operations. Thus, the corporate operations in the telecommunications sector in 2000 and 2011, the acquisitions in the energy sector and in the tobacco sector in 2007 and 2008, or the operation in the aerospace sector which took place also in 2011 have all been reflected in the maximum reached those years. 2018 has not been an exception, and part of the impressive annual figures is due to a specific operation in the transport and storage sector. However, even without accounting for this operation, the annual figures for 2018 in Madrid would still be at historical record levels, more than doubling the aforementioned average figures.
Capital status and Headquarters effect
It is also common practice to explain why Madrid has been the main recipient of flows each and every year since 1993, except 2010, in terms of a certain methodological effect, usually referred to as the ‘headquarters effect’, Although it is true that this effect exists, and that the Investment Registry allocates investments in which the company does not indicate where they will be executed effectively to the domicile of its subsidiary in the country, the distribution of said subsidiaries in Spain would not explain in itself the great difference between Madrid and the rest of the regions. According to the data of the National Institute of Statistics in this regard, Madrid hosts about 38% of the 11,880 branches of foreign companies in Spain, compared to 32% in Catalonia, the difference in number being much smaller than that seen in terms of investment flows, stock, employment linked to foreign subsidiaries, turnover or added value, for example. The reasons seem to be more linked to the size and activity of these subsidiaries, since there is a strong concentration of the stock of investment and employment in a relatively small number of large companies.
In any case, and in view of the relocations of headquarters to Madrid that have occurred in recent years, it is expected that this effect will be accentuated, in combination with that of large operations (the case of Abertis, which undertook the aforementioned large cross-border acquisition of 2018, would be a paradigmatic case).
Where does the investment coming to Madrid originate from?
Madrid receives productive investment flows mainly from other OECD countries. Within them, its European partners continue to be the main source, with the EU-15 accounting for 74% of the total flows since the beginning of the century. Among the non-EU countries, only the United States (second), the Arab Emirates (ninth) and Mexico (tenth) are among the main investors in Madrid since 2000.
In 2018, a year marked by circular investments (investments in Spain by subsidiaries of Spanish companies abroad) linked to the operation of ACS over Abertis through its German subsidiary Hochtief, ten countries have invested over 1,000 million euro in the region, showing a healthy geographical diversification. The United States has set its historical investment record (7,267 million, 18.2% of the total received by Madrid, thanks to strong investments in Property development, Monetary intermediation and Insurance, but with a strong sectorial diversification), followed by the United Kingdom (2,312 million, also very spread out, although Supply of electrical energy and Cable Telecommunications stand out), Australia (2,142, concentrated in Construction of roads and highways), Italy (1,855, with a great weight of Telecommunications), Germany (1,468), Canada (1,226, practically all of them in Energy supply), China (1,132, also linked to Energy, in operations managed from Hong Kong) and Qatar (1,035, in Retail trade in non-specialized establishments).
Investments in 2018 from other countries such as Luxembourg and the Netherlands are also significant. These countries are usually among the main investors in Spain and Madrid thanks to the conditions offered to large multinationals to establish their operational headquarters in Europe. which can be clearly seen by observing the last country through which investments pass before arriving in Madrid. If the focus is on the immediate investing country, Luxembourg and the Netherlands would occupy the second and third investor positions in terms of flows issued in 2018 to Madrid, respectively, behind Germany.
Although they are not among the top ten investors, there are significant increases in investment from Asian countries such as Japan (814 million in 2018) and Hong Kong (568 million), both setting historical records. On the other hand, Latin American economies that are traditionally more active are not among the main investors, with only Mexico in the 18th position and Uruguay in the 21st.
With these figures, Madrid accounts for more than 90% of the investment received in Spain during 2018 from countries such as the United States, Australia, Canada, China, Qatar, Japan, Hong Kong or Ireland. Investment from France, Italy or the United Kingdom is more spread out through Spain.
In line with the tertiarisation trends of large metropolitan areas, the Services sector has been the one that traditionally has monopolized the bulk of the foreign investment received by Madrid. Since 1993, it has concentrated more than 67% of the flows, a percentage that goes up to 72% of the total in the last cycle (2013-2018). The industrial sectors, meanwhile, have been losing prominence (from 25% in the entire historical register to 14% of the investments received since 2013), while construction remains stable at around 11%.
As was the case with regard to its geographical origin, investments received by Madrid in 2018 at sector level are widely spread out. Nearly ten sectors exceed 1,000 million euros of investment received in the year, led by the aforementioned investments in Transportation and Storage, which accounted for 37% of the total productive flows received, practically all of them in Storage and Activities Connected to Transport. The Construction sector ranked second (14.9% of the total, with strong representation of both Building Construction and Civil Engineering), followed by Energy Supply (9.4%), Information and Communications (9.4%, mainly Telecommunications and Film and Production Activities) and Wholesale and Retail Trade (6.8%). Sectors that also exceed 1,000 millions of investment include Real Estate, Finance and Insurance activities and the Manufacturing industry. Another 12 sectors exceeded 200 million in investment during the year, with Madrid being the destination of more than 80% of the flows received by Spain in the year in up to 34 sectors.
As had already been shown in previous entries, Madrid has a great capacity to attract productive foreign investment, leading practically all the variables related to FDI in Spain. Although the outlook for 2019 is positive, doubts about world economic growth, the intensification of trade tensions and their potential impact on the configuration of global value chains, or the tightening of access conditions to financial markets may limit the arrival of flows in the year. Moreover, if a corporate operation of the scale registered in 2018 does not occur, figures in 2019 should follow the positive trend that began in 2013, excluding the impact of these large operations.
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