by MAR GUINOT AGUADO and DARYA VAKULENKO
Bolsa de Madrid is Spain’s largest stock exchange. PHOTO/Wikipedia
As the European financial crisis intensifies, Spanish corporations have exhibited a rather bold economic game plan in the Latin American market. However, this is not the first time that Spanish corporations have turned to the once shunned region in the search for economic growth and prosperity. The potential economic benefits to be found in Latin America are pivotal to foreign investors and critical for many Spanish corporations to expand.
Previous developmental plans and investments in the private sector concentrated solely on the economic prosperity of these business firms while ignoring the social well being of the host country. This latest Spanish investment wave focuses on non-extractive sectors of the economy, such as banking and telecommunications, which have progressed in such a way that various social and economic developments of several enterprises were able to coexist. Despite the region’s volatile political environment and recurrent collisions of economic interests, the area has shown significant progress in the accumulation of revenue from Spanish investors.
Pre-2008 Crisis Spanish investments in Latin America: The First Wave
In the past, Spanish investments in Latin America have occurred in two different waves. During the Francisco Franco authoritarian regime, which lasted to his death in 1975, all foreign direct investment (FDI) required approval from the Spanish Council of Ministers, complicating and retaining the outflows of Spanish investments.(1) However, the legislative reforms prior to the Spain’s accession into the European Community in 1986 made “the notification of the FDI for statistical purposes the only requirement with no need of approval,” thereby helping to spawn the most recent wave of Spanish investments to Latin America.(2)
Ever since Spain acceded into the European Community’s single market in 1986, the country had to align its agricultural, industrial, and monetary policies with those of other member states of the European Union as a means to achieve complete economic integration.(3) However, Spain lost its comparative advantage after entering the economic treaty when stronger economies, like Germany and France, could produce similar commodities at only a fraction of the cost that it takes Spain to produce.(4) As a result of this new competition, Spain saw foreign investment opportunities as a tempting alternative and sought to enter the recent revival of rapidly expanding Latin American markets.
After years of Franco’s protectionism and authoritarian practices, it was essential for Spain to quickly modernize to adhere to the European Union’s stipulation of open markets. This process of modernizing Spain’s economy in the late 1970s and early 1980s bore resemblance to 1980s and 1990s economic trends in Latin America that implemented large-scale privatization initiatives. These similarities, as well as the convenience of a shared language, eased Spanish companies’ admittance into various Latin American countries.
Council on Hemispheric Affairs for more