Inside Zara's factory in Arteixo, Spain. The firm is the world's largest clothes retailer by sales.

The German recipe

Fighting back against the finanical crisis, Spain is adopting the German model and focusing on boosting its trade surplus through increasing exports. Its overseas sales have sharply increased, bringing a glimmer of hope – but only a glimmer as the country continues to wrestle with unemployment topping 5.5 million.

Published on 14 August 2012 at 15:31
Inside Zara's factory in Arteixo, Spain. The firm is the world's largest clothes retailer by sales.

In a Spain stuck in the economic doldrums, plagued by mass unemployment and constant bad news, booming exports have offered a rare ray of sunshine.

In its quest for a growth engine that will complement the tourism industry and fill the void left by the crumbling construction sector, the Mariano Rajoy government is convinced it has found a winning formula; support the export market and make it a national priority. It is even dreaming of transforming Spain into a sort of southern Germany with an economy based on industrial powerhouses supplying global markets and a web of small and medium sized companies eager to do business abroad.

As Spain’s Secretary for External Trade, economist Jaime Garcia-Legaz, pointed out in June, "The path towards a Spanish economic recovery will necessarily be via external markets." The signs that this is the case are encouraging. As a matter of record, Spanish exports have been booming; up by 17 per cent in 2010 and 15 per cent in 2011.

And this performance is all the more remarkable when you consider that the country had been marked by the progressive decline of its industrial competitivity in the wake of the adoption of the euro, and the collapse of the construction sector, one of the mainstays of its economy, which was hit by the full force of an exploding property bubble four years ago.

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Maintaining global share

Better still, the numbers have continued to climb in 2012. Spain is currently the only eurozone country other than Germany to have maintained its share of global goods and services exports at a time when exports have declined in France, Italy and even the United States.

The good results are largely due to the performances posted by Spain’s corporate bridgeheads: the telecommunications giant Telefonica, the energy group Repsol, the banks Santander and BBVA, the builders ACS and Ferrovial and textiles and perfumes companies like Inditex, Mango and Puig, which are competitive on international markets.

In the course of the last decade, these companies have made major efforts to improve their productivity. Anticipating the Spanish downturn, they have entered new markets and can now count on a recovery in competitivity boosted by modest wage bills in a country where unemployment is close to 25 per cent.

Not surprisingly, Mariano Rajoy’s government is eager to take advantageof their progress. At all of their public appearances and press conferences over the last few weeks, the prime minister and members of his cabinet have sung the praises of the German model and the good performance of Spanish exports.

In July, Mr Rajoy even appointed a high commissioner to develop "Spain" as an international brand. Carlos Espinosa de los Monteros, who is also the vice-president of Inditex, the parent company of brands such as Zara and Massimo Dutti, will be aiming to unite the efforts of exporting companies and to project a positive image of the country worldwide. He has also been tasked to “set the example” internally by promoting international success stories to businesses within the country.

Developing trade

Similarly, the Spanish diplomatic service has largely been refocused on a mission to develop trade. Foreign Minister José Manuel Garcia Margallo, a former MEP specialising on economic issues, now sees himself as a high profile salesman with a brief to represent the interests of major Spanish companies.

Most importantly, these efforts are being developed on solid foundations. Spain, which had a significant trade deficit with regard to the rest of the European Union at the onset of the crisis, now benefits from a surplus fuelled by its exports, which make make a substantial contribution to national wealth and account for 20 per cent of the country’s GDP, a level comparable to the one achieved by exporters in neighbouring France.

However, much remains to be done. In Germany, close to one third of the country’s economic activity is based on exports. "Our exports are currently struggling to cope with the slowdown in the economies of the Old Continent", points out Mr Garcia-Legaz. By way of a solution, the Secretary of State for External Trade is aiming to "open up new markets outside the European Union".

Having said that, external trade cannot be expected to resolve all of the Spain’s problems. Exporters only account for a small proportion of Spanish wage earners, and the sector lacks the critical mass to absorb the approximately 5.5 million jobless in the country, of whom 1.5 million are construction workers.

Finding finance

At the same time, while small and medium sized enterprises (SMEs),which employ more than 15 million people in Spain, present a potential solution the the economic mire in which the country is trapped, these firms must still overcome significant obstacles before they can successfully break into export markets.

In particular, SMEs have trouble finding the necessary finance for development abroad, especially in the context of a Spanish banking sector that remains focused on recapitalisation, where many institutions are still fighting for survival.

According to figures from the European statistics institute Eurostat, Spanish SMEs currently pay an average rate of 5.62% over three years on loans of up to €250,000; while their counterparts in Germany pay an average of 4.4%, and in France that figure stands at just 3.23%. So whereas the Rajoy government’s pledge to aid SMEs is a positive step, specific efforts will certainly be needed if it is to fulfill its promise.

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