Monday, December 17, 2018
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Salvador Guillermo

​Scenes of political uncertainty and business mobility in Catalonia

Director of Economy of Foment del Treball Nacional

Since October 1st, there has been an unprecedented movement of companies, and not so much because of their number, which is clearly relevant, but because of their characteristics. Most are large or medium-sized companies, with a high impact on the Catalonian economy and which largely represent the capacity of the economic capacity that accounts of Barcelona and Catalonia's economic power, which in turn caused them to be unique.


Incertidumbre economica


For all these reasons, the relative importance of these changes in domicile should not be underestimated, and particularly in the reputation and image of Catalonia that has been characterized by its strong economy, even without it being the country capital.


In the short term, a relocation motivated by issues of a strictly legal security nature in response to high political risk, would not have had a quite significant economic impact in the short term because the companies' centre of production activity remains where it was originally. Although there are significant negative effects in terms of image and reputation for the Region.


Risks are more relevant in the medium term inasmuch that the implementation of some investment plans might be curtailed, if the atmosphere of legal uncertainty remains. If this continued to be the scenario, business activity could be affected with the corresponding significantly negative impacts on investment and employment


Many companies have stranded costs that hinder their mobility, others where these costs are lower can carry out a gradual transfer of goods and services produced in Catalonia to the new headquarters where they have relocated. 


In addition to this effect, we have to add a dynamic effect derived from the possible exclusion of new investments that may occur from these companies or by multinationals from other countries.


We should highlight this uniqueness of the Catalonian economy, since there are few countries in which two powerful areas (or cities) co-exist within the same country, in which, at least in Europe, the political capital is usually also the economic capital. It should also be noted in the case of Catalonia the strong presence of foreign capital. Thus, in 2015 there were 12,338 subsidiaries of multinationals established in Spain, of which 31.5% were in Catalonia (3,886). Its importance in terms of employment is more relevant still, given that these subsidiaries account for 18.9% of employment in Catalonia, with only 1% of companies based in Catalonia contributing 30.8% of the turnover and 27.5% of gross added value, with 45.9% of its sales coming from outside of Spain.


It has been this greater political uncertainty and the events in Catalonia that have led to a significant outflow of companies, essentially as of October 1st, and it has been concentrated on the larger companies. 


This movement has occurred to safeguard its shareholders, employees and customers in the best possible way. 


They have activated their contingency plans, which have already been established in the event of certain eventualities, and which has occurred to a greater extent and more quickly in the most sensitive sectors such as the financial and insurance sector, as well as among companies listed in organized secondary markets, which have seen their stock value significantly affecteddue to the uncertainty.


According to Informa, in recent years, in average terms 43,500 Spanish companies have moved their head offices in 2013, 2014, 2015 and 2016; and for 4,000 companies, this move has been from one Autonomous region to another.


In the years from 2013 to 2016, Catalonia, except for 2015 (which had a positive balance of 4) has had a negative net balance (more outflows than business new arrivals) that have oscillated between 200 and 300 companies, normally of all sizes, without large companies being a major proportion of them.


Likewise, based on the data from the first and second quarters and extrapolating them to the entire year, if the same trend would have continued, the 2016 total would have been -279 companies. 


This is quite different from what actually happened due to the political situation and uncertainty in Catalonia, and on top of this, the flight of companies has been particularly the large and medium ones, which as we already know, constitute a lower relative weight in the Catalonian economy.


Thus, as of the first days of October and particularly in the middle of the month, there was a stampede of mobilizations and announcements of changes of social and fiscal headquarters of a large part of the largest and leading companies based in Catalonia, reaching a daily maximum on October 19th with the departure of 268 companies. According to the College of Registrars, the companies that have left by changing their headquarters since October 1st is 2,724 companies, and only 103 companies have entered.


This political scene has also been reflected in trade with the rest of the Autonomous Regions of Spain, which averaged 17,378 million Euros in the period 1995-2001. 


These values and direction repeats itself in 2016, and hence the loss that may result from a possible boycott, currently of little relevance, may affect this significant surplus in the sale of goods with the rest of Spanish Regions.


For all these reasons, what is important is to maintain political and institutional serenity that avoids situations that might lead to boycotts. Unfortunately, boycotts result from emotional and irrational behaviour which, once they have run their course, disappears, and its effects are temporary depending on the depth and duration of this emotional element.

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