(Just in! In the serendipity department, as this post was being published the CNMV was announcing that Soros' purchase of 25% of FCC had been called off.)
José has put together some commentary on trends in foreign direct investment in Spain.
1). The money invested, be it in the form of equity, related company debt or investment in new plant and machinery, is considered to be a long-term commitment.
2). In the case of an equity investment, the amount should represent a 'significant' share of the receiving company's outstanding stock - generally 10 per cent or more.
3) Fitting the bill, for example, is George Soros' recently announced intention to purchase 25 percent of Spanish infrastructure contractor, FCC. That will show as 600 million euros in the inbound FDI column. It's not a stock market punt.
The chart on the left divides FDI in Spain into two categories - ETVE... and not. ETVE is the Spanish acronym for 'Foreign Securities Holding Company' and refers to holding companies whose sole purpose is to manage investment portfolios. They get attractive tax treatment in this country... and we don't want to know anything about them for the purposes of this piece.
What is interesting, though, is the pink area that shows not just amounts but also a certain cyclicality of foreign investments in productive enterprises. We've divided the three upswings in FDI into 1998-2000, 2004-2008 and 2011-2013. The next three charts show how source countries and economic sector and geographic destinations have changed over the last decade and a half.
By FDI origin, it's clear that European Union sources, although still dominant in 2014, have been waning. Making up 90 per cent of the total from 2004 to 2008, to date in 2014 this has been reduced by 25 points. In the meantime, the rest of the world has picked up much of the slack with notable increases on the part of developing economies. All pretty consistent with the post-crash dearth of investment on the part of European companies - despite the ample price adjustments that have been inflicted on Spanish assets.
Even more marked are the the changes in sector composition of foreign investments in Spain.
1998-2000: Dominated by investments in telecom and retail and wholesale commerce.
2004-08: Energy was the big winner, greatly influenced by Enel's 30 billion euro 2007 takeover of Spanish electric utility, Endesa. But not to be forgotten is the subsidy- and legislation-driven money spent on renewables over the period.
2008-11: The inconvenient 'rest' category comes to the fore. One of these days, we might attempt to sort through it's 99 components to see if there's some pattern.
2014: Construction and real estate in the most recent period. Lots of cheap properties attracting the attention of private equity funds. And cheap companies also - Soros' above-mentioned purchase will fall under this category.By destination region, Madrid has always outperformed the rest of the country if for no other reason than it houses the head offices of many Spanish corporations. This probably obscures the fact that Catalonia is likely the perennial leader in new plant and capital goods investment - or was. One is tempted to jump to conclusions from the notable decline over the first six months of 2014. Also worth noting is that the Basque Country seems to have become an attractive destination this year and that Andalusia continues to wander around in the wilderness. Seems the south just can't, or won't, attract foreign investment to match its weight in the Spanish economy.
Lastly, a look at how Spain stands in the world FDI panorama.
National FDI data from the Ministry of Finance Foreign Investment Bureau. World data via UNCTAD.
José Domingo Rosello with contributions from Charles Butler and Javier García Echegaray.
