Catalonia… from the 3% perspective!

by Joseba Barandiaran

Believe it or not, the Basque economy is growing at a 3.0% y/y pace. High in historic terms, and common to both Navarre and the Autonomous Region of the Basque Country (ARBC), which count for 90% of the population of the Basque Country and an even higher portion of its economic activity.

During the last month, most economic and political talk in our country has been dominated by Catalonia and its struggle for independence from Spain. After making the “3%” rate popular as the commission amount that many politicians used to get from public work companies in that region, Catalonias’ ‘procés’ arrives with the Basque economy looking at it from the same level, 3.0% rate of growth.

The big question is when and how severely this whole process will impact our economy… most probably taking it to a lower rate of growth. The contagion process has different channels that affect us: first, the commercial one, given that Catalonia is a big market and provider for Basque companies. After CEPREDE’s C-intereg Project, Catalonia sold somewhere around 3.7 billion goods to the Southern Basque Country in 2016 and bought some 2.8 billion. That is well over 15% of total Basque business with Spain. Catalonia is also a big tourism partner for Basques. The second channel would be the financial one, via risk premium rising on Spanish debt and, as a consequence, Basque debt. And the third one, foreign direct investment, if international investors were to associate the Catalan problem with Spanish instability or with eventual Basque political instability. So far, this has not stopped the private equity group, Cinven, from acquiring a majority stake in Planasa, a berry supplier from Navarre, for some €450 million.

The biggest private employer in the Basque Country is Volkswagen Navarra and their Polo model got an award in the Volume Segment, during the Car Body Benchmarking conference held in Bad Nauheim, Germany. Also in that country, SPRI, the ACBR’ s internationalization agency, expanded its Munich office. Spain, France and Germany account for the greatest portion of Basque trade. The advance manufacturing and machine tool congress held in Donostia this month shows how important the Basque Industry 4.0 strategy may be for Basque industry. And by the way, SPRI just announced its re-branding: “Nazioartekotzeko Euskal Agentzia /Basque Trade and Investment.”

On the other hand, Basque R&D expense seems to be quite small still: ACBR´s 1.93% of 2015 GDP (even less in Navarre and the Northern Basque Country) may look good compared to Spanish regions (Sorry, the content is not available in English.) But it´s obviously not enough, given the high proportion of industry in our economy and our need to compete with the strongest industrial regions of Germany, France, Korea or China. 57% of scientific publications come from universities; but none of them are in the top 200 of the Shanghai Index, as the Basque mathematician Enrique Zuazua explains here (in Basque).

Collected taxes are at their maximum right now. But wait, next year, corporate tax in Navarre shall collect one third of what it did in 2007.  It´s not a bad moment to think about our medium and long-term needs. No matter what happens in Catalonia, the technological challenge for the Basques is big, and so is the need to attract foreign talent. That’s somehow what Bizkaia Talent is trying to do: starting in Bizkaia, but looking at the whole Basque Country, just take a look at the Be Basque Talent Conference. I’ll take a look at the Bilbao Tech Week (@Bilbaotechweek) myself.

 

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Joseba Barandiaran
Joseba Barandiaran is an economist @barandiaranj | Mail | LinkedIn

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