Foreign companies in Spain forecast a "clear improvement" in their activity in 2021, in aspects such as investment, staffing, turnover and exports, following the unfavourable outlook of 2020.

This is one of the main conclusions of the 13th edition of the "Barometer of the business climate in Spain from the foreign investor's perspective", jointly published by ICEX-Invest in Spain, Multinationals for the Spain Brand and the International Center for Competitiveness at the IESE Business School. It includes the rating and importance given to the business climate in Spain in the opinion of over 830 foreign companies.

According to Reyes Maroto, Minister of Industry, Trade and Tourism: "All the indicators show that 2021 will be the bounce-back year, and that the foreign trade sector will be the key to the economic recovery". She stressed that "it is a priority for the government to support the internationalization of businesses, especially SMEs, and ensure an investment-friendly business climate, as envisaged in the III Action Plan for Internationalization 2021-2022 that is being developed within the Recovery, Transformation and Resilience Plan".

Referring to the results of the barometer, the minister highlighted that "73% of companies plan to increase or maintain their investments in Spain, and 83% intend to increase or maintain their workforce". These data are "aligned with the European Commission's winter forecasts that Spain will be the fastest growing country in the European Union in 2021".

The publication was presented at a conference attended by Xiana Margarida Méndez, Secretary of State for Commerce; Elisa García Grande, CEO of ICEX-Invest in Spain; Beatriz Blasco, President of Multinationals for the Spain Brand; María Coello de Portugal, associate director of the Madrid Campus, IESE Business School; and María Luisa Blázquez, associate researcher at the International Center for Competitiveness – IESE Business School.

During the presentation, Xiana Méndez highlighted the key role of this barometer from the foreign investor's perspective, especially in a global environment like the current one. "By questioning the economic operators, learning their opinions and their perception of our business climate, we can obtain a source of information with which to make informed decisions and take appropriate measures to promote the development of new investments".

The responses from the more than 830 participating companies were collected in October and November 2020, and thus reflect the impact of the COVID-19 pandemic on the business climate and on companies' results and perspectives. For this reason, this edition includes a specific chapter on the impact of the health crisis in order to assess and define this circumstance.

Generally speaking, the assessment of Spain's business climate has fallen since the previous year, with an average score of 2.8 out of 5, two tenths less than in the last edition.

Investors gave the highest scores to infrastructure, followed by human capital and quality of life. It is positive that these are once again this year the most important areas for investors.

Future prospects
The COVID-19 pandemic and the ensuing economic crisis have clearly affected foreign investors' forecasts in Spain for 2020, although companies foresee a clear improvement in 2021. However, the results will not yet return to pre-pandemic levels.

The 2020 investment outlook for foreign companies in Spain was not positive, with only 60% of companies in favour of increasing or maintaining their investments in Spain in 2020, compared to 91% the previous year. In 2021, the percentage of companies planning to increase or maintain their investments in Spain is up again, to 73%.

The outlook for the labour market has been less negative, possibly due to the role of the furlough scheme (ERTE); the percentage of companies planning to increase or maintain their workforce in Spain fell to 70% in 2020, from 87% in 2019.

The outlook for sales in Spain for 2020 was the aspect most seriously affected by the unique circumstances of last year. Thus, only 36% of companies expected to increase or maintain their sales in 2020, although this percentage rises to 69% in 2021.

Finally, in regard to export volume, 75% of the foreign companies in the survey export to third markets from Spain. In 2020, 29% of all the companies surveyed planned to reduce their exports, although this percentage falls to 15% in 2021.

Recovery of FDI
Spain has also seen a decline in foreign direct investment flows, although not as intensely as in other countries. According to the Register of Foreign Investment at the Ministry of Industry, Trade and Tourism, foreign investment in Spain (not foreign-securities holding entities, or ETVE) in the January–September 2020 period fell by 11% compared to the same period in 2019.

This decline is mainly due to the low volume of FDI in the first quarter of the year, which bore the main brunt of the pandemic and the mobility restrictions. In contrast, the productive FDI that Spain received in the second and third quarters of 2020 not only substantially improved the figures for the first quarter of the year, but also those for the second and third quarters of 2019. Thus, FDI for the second quarter of 2020 was 17% higher than for the same period in 2019, while FDI for the third quarter of 2020 was 30% higher than for the third quarter of 2019.

These figures suggest that after the initial negative impact of the COVID-19 pandemic, and coinciding with the gradual de-escalation since June, investors have resumed their operations in Spain.