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Spain

Foreign Investment

Since the late 1950s, foreign investment has played an increasingly crucial role in Spain's economic modernization. One of the first and most significant steps included in the Stabilization Plan of 1959 was granting foreigners permission to buy Spanish securities. In 1963 this measure was supplemented by allowing foreigners the right to secure majority interest in Spanish companies, except those engaged in fields deemed to have strategic importance. As a result of these actions, there was a large influx of foreign capital into Spain.

Spain was attractive to foreign investors not merely because it offered opportunities for participating in a rapidly expanding domestic market, but also because it served as a base for further export and trade with EC countries. This was a leading factor in Ford Motor Company's 1974 decision to build an assembly plant near Valencia, and in General Motors' entry into the Spanish market. Japanese companies also intensified their investments and presence in Spain with similar goals in mind. Low-cost labor was another attraction for foreign investors, though not to the same extent as in the 1960s and the 1970s.

In compliance with the EC accession agreement, rules governing foreign investment in Spain were adapted to EC standards in 1986. The new measures streamlined administrative procedures and reduced the number of sectors in which foreign ownership was restricted. The requirement for prior authorization of investments was replaced by one calling merely for prior notification. Notification had to be given when the investment was for more than 50 percent of a Spanish enterprise, when it constituted a re-investment by foreigners, or when its goal was the establishment of branches of foreign companies on Spanish soil.

The influx of foreign investment was extremely large during the 1980s, almost tripling between 1982 and 1987. Some of it took the form of speculative investment, attracted by high Spanish interest rates. More than half of all new foreign investments in Spain represented an expansion of previously existing investments; nearly one-third were in the chemical industry and in the nonfuel mineral processing sector. EC countries became the most important source of investment (see table 12, Appendix). The United States, nonetheless, still accounted for about 20 percent of the cumulative foreign investment total. It was expected that, if negotiations being conducted in 1988 for a United States-Spain treaty to avoid double taxation were successful, United States investment might increase.

Spanish direct investment abroad, for which regulatory restrictions were liberalized in 1986, doubled to 101 billion pesetas in 1987. EC countries accounted for 64 percent of the total, with the Netherlands, West Germany, and Portugal being the largest recipients. Investments in the United States fell to 8 percent of the total. Spanish investments in Latin America, especially in Mexico and in Argentina, declined sharply because of heavy debt burdens in that region. By the late 1980s, analysts estimated that Latin America accounted for only 4 percent of Spain's foreign investments.

Data as of December 1988