The independence process and investment

There are those who say that the Catalan independence process is like the ten plagues of Egypt, and that, as a consequence (and from an economic point of view), GDP will decrease, nobody will invest in Catalonia, businesses will flee, and so on and so forth until Catalonia is completely impoverished.

Therefore, any data that point towards this catastrophe are used immediately by opponents of Catalan independence to support their position.

Not long ago there was a certain controversy over the foreign investment data for Catalonia in 2014. According to Spain’s Ministry of Economy and Competitiveness, 2014 saw a decrease of 15.8% in gross foreign investment in Catalonia. Later, the Generalitat’s Department of Economy and Business announced that in 2014 the number of investment projects in Catalonia had shown a moderate increase when compared to 2013, and that their figures for foreign investments that were geared toward production and control (mergers, acquisitions, and joint ventures) far exceeded those presented by the Ministry. With such contradictory figures, controversy broke out.

Last week, the Barcelona Chamber of Commerce helped to shed some light on the matter, concluding that it could not confirm that investment in Catalonia had been affected by the political context surrounding the independence process.

According to the Chamber of Commerce, the main difference lies in the fact that the Ministry and the Generalitat use different methodologies, and that differences can also be due to the form and the moment in which the operations are registered. For this reason, and because of the volatility of these figures, they concluded that it’s preferable to focus our attention on identifying trends over multi-year periods, and stop interpreting quarterly or annual variations.

Following this reasoning, the Chamber of Commerce recognizes that foreign investment in Catalonia is currently 26.6% higher than in 2008, and that in 2014 productive investment (domestic and foreign) grew by 9.7%, above the overall Spanish average (8.8%).

Also, between 2000 and 2014 productive investment in Catalonia represented 23.3% of the total for Spain, far in excess of the Catalan GDP (18.9%), and on a par with the average for the last 15 years.

In addition, the Chamber accompanied the data above with the results of a survey of around 3,000 Catalan businesses in all economic sectors conducted during the first quarter of 2015, which indicates good prospects for investment and financing in 2015.

The business owners surveyed also highlighted the factors that most affect their prospects for investment. On a scale of 1 to 5 (from lesser to greater importance), the results are as follows: demand factors (3.9), economic and fiscal policy (3.2), technical factors (3.0), institutional factors (2.8), other (2.7). Therefore, the most relevant issue is for the economy to do well and that economic and fiscal policies are adequate. On the other hand, institutional factors --which I understand to include the role of institutions in the independence process-- rank fourth on the list.

The trouble is that the Catalan government has quite limited powers in economic policy, and that the recent recentralizing efforts of the Spanish government have reduced even more the Generalitat’s slim leeway for implementing their own policies. Thus, we are left to trust that the policies enacted by the Spanish government are correct for Catalonia, even though they often don’t respond to the needs of the Catalan economy.

This lack of decision-making powers for the Catalan government has been a heavy burden for economic growth. The fact that an independent Catalonia could design its own policies (fiscal, labor, financial, infrastructure, education, etc.) would undoubtedly be an intangible asset that would have an effect on the Catalan GDP.

Obviously, it would depend on how these policies were formulated, but there would be a considerable improvement simply by shaping them to meet the actual needs of the territory.

In conclusion: firstly, it would appear that the independence process has not endangered productive investment in Catalonia so far. Secondly, it does not seem that the factors that most concern businesses when investing are institutional, either. Thirdly, independence could bring about an improvement in the economic policies applied to Catalonia, which in turn could favor investment and economic growth. And lastly, it’s also important to say that it’s true that companies want political, economic, and social stability. Until now, the independence process has not created instability because it has developed peacefully and democratically. Therefore, it’s very important that things continue this way so as to reduce uncertainty as much as possible.